The Federal Reserve has slashed short-term interest rates by a half percentage point five times this year, in its most aggressive rate-cutting assault in nearly 20 years. This Tuesday and Wednesday, the Fed's rate-setting committee meets again to decide whether to cut rates and by how much.

        So far, the cuts have had little effect. The nation appears mired in a classic growth recession. The economy is still growing, but not fast enough to create jobs for everyone coming into the labor force. While the overall economy might not yet have met the technical definition of recession, some sectors have clearly succumbed — manufacturing and trucking, for example. That could be reason enough for the Fed to lower short-term interest rates this week by as much as half a percentage point to 3.5 percent.

        When the rebound will begin is anyone's guess. And the official data aren't much help, because they've been contradictory, confusing and inconsistent — pretty much par for a period when the economy is in flux.

        USA TODAY economics reporters George Hager and Dina Temple-Raston examined some of the key gauges of the economy and what the measures say about where things are headed.

        Consumer confidence: qualms can slow recovery

        Just how good Americans feel about the future will play a key role in whether the economy will end up slipping into recession or touching bottom and pulling out of its slump.

        As more companies announcing layoffs, consumers take on more debt and the stock market struggles to find its footing, confidence surveys are picking up on increasing consumer edginess. The more worried Americans become, the worse the odds of a quick recovery.

        In May, the Conference Board reported an unexpectedly strong bounce in its consumer confidence index to 115.5, from 109.9 in April. While the jump indicated Americans were slightly less wary, the business group's study also showed an increasing concern among consumers about the job market. The number of respondents reporting jobs as “hard to get” rose slightly to 14.7 percent from 14.2 percent.

        The good news is that consumers, for the time being at least, appear to be accentuating the positive and looking beyond the current slowdown. The consumer confidence numbers went up, analysts said, because consumers are upbeat about how the economy will perform over the next 6 months.

        Economic growth: recovery's timing uncertain

So far, the economy hasn't met the usual definition of a recession, which is at least two consecutive quarters of shrinking gross domestic product, or output. GDP grew at a barely positive 1 percent annual rate in the last quarter of 2000 and was a slightly less anemic 1.3 percent the first quarter of this year. That's well below the 3.5 percent to 4 percent growth rate economists say makes for a healthy U.S. economy.

        For most observers who have been waiting months for the U.S. recovery, it is hard to see how the economy gets from today's glacial growth to tomorrow's rebound. With growth rates around the globe slowing, consumers edgy about layoffs and the economy hard to read, the past year has been white-knuckle time for everyone.

        At this point, the Fed's rate-cutting campaign could hold the key. Fed watchers are quick to remind doubters that interest rate moves always kick-start the economy — eventually — and this time will be no different. But it can take 6 months to a year for lower rates to give the economy a boost by shaving the cost of financing on everything from factory equipment to consumer goods. While economists are divided over whether the Fed will lower rates a quarter point or half a point this week, there is one thing on which they do agree: Whatever jolt lower rates provide for the economy, it will come none too soon.

        Consumer spending: buying slows to healthy pace

Consumer spending accounts for about two-thirds of economic growth, and if it tanks, the economy does, too. So far, despite layoffs, a turbulent stock market and grim news from the nation's biggest companies, Americans are still shopping.

        Autos appear to be selling at a brisk pace in June. Automakers are offering incentives to lure customers, and that's kept them buying. Analysts project the June numbers will show that consumers snapped up vehicles at an annual clip of about 17 million. The record, set last year, is 17.4 million. The bad news: American automakers are giving ground to Asian and European automakers.

        Mixed signals aside, what is clear is that consumers' intensity has dropped from the heady days of the winter of 1999-2000, when overall consumer spending roared ahead at an astonishing, and unsustainable, average annual rate of 6.8 percent. Spending fell to an annualized pace of less than 3 percent late last year and early this year, and it may have slipped to 2 percent or less this spring.

        But it's still enough to keep the economy from going over the cliff. Despite worries about whether the disappearance of the stock market-driven “wealth effect” would kill off spending, economists say the key factor here is jobs. As long as people have them — and believe they'll keep them — consumer spending will continue to be healthy.

        Interest rates: rally follows cuts, eventually

An old stock market adage advises: Don't bet against the Fed. When the Federal Reserve lowers the short-term Fed funds rate, which is what banks charge each other for overnight loans, the stock market and the economy virtually always rally — eventually.

        The key word is “eventually.”

        Since the beginning of the year, the Fed has slashed rates by a half-point five times. Few analysts doubt the Fed's elixir will work, but this is slow-acting medicine.

        It traditionally takes from six months to more than a year for rate cuts to percolate through the economy, gradually prodding consumers and businesses to spend more as borrowing gets cheaper. So far, the Fed's work has had little apparent effect on the economy. Demand has continued to weaken, company profits have eroded and the stock market remains weak.

        Fed Chairman Alan Greenspan — who could decide to cut rates even further on Wednesday — said recently the Fed's efforts should be showing up in the form of stronger economic growth by late this year. Some economists agree, especially because the rate cuts will get a boost from tax rebates this summer.

        Employment: jobless numbers creep up

Every Thursday, the government issues its weekly report on new claims for unemployment benefits, a key gauge of how many people are losing their jobs. Economist say there are two key thresholds to watch for in the number of new claims each week.

        One is 400,000. Below that, the economy is probably generating enough new jobs to keep payroll growth positive. If claims go above 400,000, it's a sign the economy is losing jobs. The other is 450,000. If that many people or more are losing jobs and filing for unemployment benefits every week, economists say, it's a sign the economy has fallen into a recession.

        The weekly unemployment number shot above 400,000 in the week of April 21 and has remained there 6 of the 8 weeks since, at one point reaching 437,000. Given that, it is likely the June employment report will show a third consecutive month of losses, something that has happened only once since World War II without signaling that the nation was either in or about to enter a recession.

        Though the unemployment rate actually dipped in May to 4.4 percent from 4.5 percent in April, economists think that was just a temporary respite. Many analysts expect it to hit 5 percent or more before the end of the year.

        Inflation: Prices overall are fairly stable

How can Federal Reserve Chairman Alan Greenspan say inflation is no problem, when prices for such things as airline fares, Internet access, long-distance phone calls and cereal are all going up?

        Because prices for all sorts of other things — cars, computers, clothing, tobacco — are either falling or barely rising.

        True, the consumer price index (CPI), the best-known price index, looks a little ugly at the 3.6 percent annual increase it posted in May. That's not nearly as bad as the 6.1 percent it hit in 1990 or the 13.3 percent in 1979, but it's not as good as the 1.6 percent low in 1998, either. On the other hand, subtract volatile food and energy prices from the index, and the “core” CPI was up a much more benign 2.5 percent. And that's pretty much where it's been since last summer.

        Greenspan's favorite inflation indicator is the Bureau of Economic Analysis' obscure “core personal consumption expenditure deflator,” which also backs out food and energy prices and was a tame 1.7 percent in April, the latest available. That led Greenspan to tell the Senate Banking Committee last week that “it is very difficult” to see any inflation problem in the near future.

        The good news about a weak economy is that companies lack “pricing power,” which means they have a tough time raising consumer prices and making those prices stick.

        Manufacturing: sector spotted trouble early

The National Association for Purchasing Management, which measures the nation's factory sector every month, detected trouble all the way back in March 2000, when the NAPM monthly survey showed factory activity beginning a steady slide.

        By last August, the NAPM survey had dipped below 50, which indicated the manufacturing sector was contracting. It has stayed below 50 for 10 consecutive months through May, signaling that the sector is stuck in a recession as factories struggle to work off bloated inventories in the face of weak demand.

        By January, the NAPM gauge had fallen to a point that in the past has indicated manufacturing was so weak, it had dragged the rest of the economy into recession, as well.

        The survey then rallied enough to make analysts think the sector might be recovering — only to drop back again in May.

        That's bad news for the broader economy, but it's not necessarily fatal. Manufacturing has steadily shrunk in relation to an increasingly service-oriented economy.

        In the 1950s, factories employed 33 percent workers; now it's less than 14 percent. So while factories have been hemorrhaging jobs this year, better job markets in other sectors have limited overall losses.

        Housing: strong, but hints of slowing

Economists are fond of saying that the nation has never had a recession when the housing market was strong. And until now, at least, housing has been an island of strength in a weakening economy.

        Propelled by mortgage rates that fell from 8.6 percent in May 2000 to under 7 percent this spring — and the fact that houses have been a much better investment than stocks over the last year — house sales have hung in at historically high rates. According to Stone & McCarthy Research Associates, sales of existing homes posted their second-best month ever in March, and new-home sales set an all-time record last December.

        Home sales are crucial, because they are a good indicator of consumer confidence. People don't usually buy houses when they think they're about to lose their jobs. And because home buyers often buy things to fill up their homes — carpeting, appliances, furniture and so on — home sales are a powerful engine of economic activity.

        There are signs of weakening, however. The average rate on 30-year fixed mortgages has bounced off its low of 6.9 percent and was at 7.1 percent last week. And there are increasing reports that expensive houses are getting harder to sell. But the University of Michigan Consumer Sentiment survey showed that home buying plans in May were higher than they'd been in two years.

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