The chances for lower interest rates faded further last week, and prospects of a recession were firmly pushed back to next year.
The prime reason: Consumers went shopping in February and gave the economy a boost, according to the monthly retail sales report from the Department of Commerce.
If much chance had remained, after February's surprisingly large employment gains, that the Federal Reserve would ease credit when its policymaking panel meets Tuesday, it was dashed by the generally good sales report.
"I don't think they will make any moves at the meeting on Tuesday," said Sung Won Sohn, chief economist at Norwest Corp.
"We are still in a soft-landing mode," said economist Sally Kleinman of Chemical Securities Inc., a unit of Chemical Banking Corp., New York.
Soft landings occur when the Fed manages to muffle inflation and regulate the economy's pace without triggering a recession. The ideal growth rate is "not too hot and not too cold," like the porridge in "Goldilocks and the Three Bears."
"The employment report shook the idea that we were heading toward a recession this year, and the retail sales report now confirms that we can expect moderate growth this year," said Anthony Chan, chief economist at Banc One Investment Advisors, Columbus, Ohio.
Mr. Sohn agreed that the economy is indeed growing at a moderate and acceptable pace right now, but he cautioned that recent indicators were distorted by harsh winter weather in the eastern half of the country and the partial shutdown of the federal government.
And more distortion is ahead. Market sources say the March employment report, due April 5, may show a payroll decline of 100,000, largely because of the strike against General Motors.
Mr. Sohn cautioned that the economy's progress could well be threatened later this year by a series of factors, most notably a sluggish housing sector as a result of the recent rise in long-term rates.
"We may have seen the last hurrah for the housing sector in this economic cycle," he said. Housing-related industries, such as furniture, may also be hurt and consumer sentiment damaged.
What about next year? "The jury is still out on that," said Mr. Chan. "We could very well enter a recession later next year, although it probably will be a modest one."
If so, it would not be altogether surprising.
The United States has endured nine recessions in the postwar era, and six began the year after a presidential election, noted Stuart G. Hoffman, chief economist at PNC Bank Corp. The odds of a business downturn next year, he said, are thus greater than 50%.