In the second half of 2007, the economy slowed from 5 percent GDP growth (annualized) in the third quarter to only 0.6 percent in the fourth. Such a big change in momentum makes it feel like a recession, even if the economy is still growing (and therefore not technically in a recession).

Construction and some parts of manufacturing are in recession. This is one reason why the report of slowing activity in the service sector made such a big splash. It also suggests that the next two big economic reports will be on the labor market (did the number of jobs fall for a second straight month?) and on retail inflation (is the slow economy slowing price increases?). The answers could be: 1) no, slow job growth returned in February, and 2) no, slow economic growth is not relieving upward pressure on prices. These answers combine with continued news of money lost in the financial market. Credit availability is still a big concern, perhaps big enough to lead to still lower interest rates.

The U.S. economy is slow, but not in recession. Growth elsewhere, while still more robust than in the U.S., is also losing momentum. The Leading Economic Index for the United Kingdom fell for the fifth time in the past six months. The Index for Japan declined for the second straight month. And the Korean index showed the largest decline in the last year and a half. Moreover, the ECB (the European equivalent of the Federal Reserve) is starting to signal markets that it may lower rates if more signs of slowing economic growth pop up.

What is roiling the global economy are continued losses associated with slowing housing — in the U.S., U.K., Australia, and even Spain and Germany. More importantly, credit availability is being limited by these mounting losses and fears of how much money could be lost. Financial markets have been roiled by these problems for months. Nevertheless, gauging the extent of losses is difficult given the degree of opaqueness in some sectors (especially in the market for financial derivatives). Whatever the extent of the losses, it is beginning to limit credit availability.