The good news is bad news for mortgage shoppers

Some favorable economic news surfaced this week in the form of higher than expected January retail sales and a less than expected increase in December inventory levels.

Comments by Federal Reserve Board Chairman Alan Greenspan signaling hope of averting recession and posting moderate economic growth in 2001 have thrown cold water, at least for now, on the thought of the Fed acting prior to their March 20 meeting.

A rebound in consumer confidence at month-end would sustain the belief of economic recovery, likely cementing just a quarter-point cut in March. The Federal Reserve Open Market Committee has cited the level of consumer confidence in its past three statements dating back to December, so the importance is well-documented.

All this raises the prospect of less drastic Fed action in the coming months. The current sentiment is that the economic weakness seen thus far in 2001 isn't as bad as what was seen in December, mostly due to better weather and more efficient inventory management.

Throw in two rate cuts of 50 basis points each in January, and suddenly the outlook is brighter. Bad weather was blamed in part for poor December retail sales. Better January weather enticed consumers out of their homes to take advantage of the reduced prices many retailers were using to push the excess inventory out the door.

And more efficient management of inventory has prevented too many excess goods from piling up when sales slowed.

The dominoes fall like this: the sooner retailers rid themselves of excess inventory, the sooner they can begin re-stocking by placing orders with manufacturers. The manufacturing sector can then stage its own revival by re-starting some temporarily dormant production facilities and averting further layoffs.