The price index was up, ... This reflects the rise in oil prices and not much else, but that won't stop doom-mongers worrying about it. In short, the report shows manufacturing is still on track.

There is no reason yet to expect a real weakening in sales.

This will doubtless shock the markets, and makes an October rate cut more likely, but it does not change the outlook for a near-term recovery, ... Falling employment, rising unemployment lag activity. These numbers reflect the second quarter economic stall.

The question the Fed now faces is what will happen to growth looking forward in the wake of a 75-basis-point tightening?

It now appears that the trend in jobless claims is stabilizing at about 400,000 per week, ... This is well above the trend level at this time last year, but it is no higher than in the spring. This means that layoffs are continuing at a rapid pace, but they are not accelerating.

With productivity likely to slow a bit further, there is little room for maneuver. In short, good news today but not enough alone to change the outlook.

It now seems appropriate to start thinking about a fed funds rate as low as 4 percent by the summer.

Supply remains tight; buyers may have been unable to find the homes they want where they want them. Housing will not fold.

We think there is a good chance that home sales recover, or at worst stabilize, over the next few months. The starts data are potentially seriously misleading.

Still, this is a hugely encouraging report, pointing clearly to a vigorous recovery.