but that impetus to activity will be short lived unless the demand for goods and services itself starts to rise. on that score, despite a number of encouraging signs of stabilization, it is still premature to conclude that the forces restraining economic activity here and abroad have abated enough to allow a steady recovery to take hold. for that to happen, sustained growth of final demand must kick in before the positive effects of the swing from inventory liquidation to accumulation dissipate. for the household sector, which had been a major stabilizing force through most of last year's slowdown, the outlook for demand is mixed. low mortgage interest rates and favorable weather have provided considerable support to homebuilding in recent months. moreover, attractive mortgage rates have bolstered both the sales of existing homes and the realized capital gains that those sales engender. they have also spurred refinancing of existing homes and the associated liquification of increases in house values. these gains have been important to the ongoing extraction of home equity for consumption and home modernization. the recent rise in home mortgage rates, however, is likely to damp housing activity and equity extraction. it is already having an effect on cash - outs from refinancing. cash - outs rose from an estimated annual rate of about $ 20 billion in early 2000 to a rate of roughly $ 75 billion in the third quarter of last year. but the pace of cash - outs has likely dropped noticeably in response to the recent decline in refinancing activity that has followed the backup in mortgage rates since early november. consumer spending received a considerable spur from the sales of new motor vehicles, which were remarkably strong in october and november owing to major financing incentives. sales dropped last month when the incentives were scaled back, but have remained surprisingly resilient. other consumer spending appears to have advanced in recent months, though at a subdued pace. the substantial declines in the prices of natural gas, fuel oil, and gasoline have clearly provided some support to real disposable income and spending. these price declines added more than $ 50 billion at an annual rate to household purchasing power in the second half of last year. however, a decline in energy prices provides, in effect, only a one - shot boost to consumption, albeit one that is likely to take place over time. to have a more persistent effect on the ongoing growth of total personal consumption expenditures, energy prices would need to continue to decline. futures prices do not suggest that such a decline is in the

, often resulting in differences in the speed and magnitude of their responses to changing business conditions. in contrast to the situation that prevails today, businesses did not have real - time data systems that enabled decisionmakers in different enterprises to work from essentially the same set of information. in those earlier years, imbalances were inadvertently allowed to build to such an extent that their inevitable correction engendered significant economic stress. that process of correction and the accompanying economic and financial disruptions too often led to deep and prolonged recessions. today, businesses have large quantities of data available virtually in real time. as a consequence, they address and resolve economic imbalances more rapidly than in the past. at the same time, firms are largely operating with the same information set, and thus resolution of imbalances induces parallel movements in activity. contractions initially may be steeper, but because imbalances are more readily contained, cyclical episodes overall should be less severe than would be the case otherwise. in the current situation, inventories, especially among producers and purchasers of high - tech products, did run to excess over the past year, as sales forecasts went badly astray ; alas, technology has not allowed us to see into the future any more clearly than we could previously. but, technology did facilitate the quick recognition of the weakening in sales and backup of inventories. this enabled producers to respond forcefully, as evidenced by output adjustments that have resulted in the extraordinary rate of inventory liquidation currently under way. inventories in many industries have been drawn down to levels at which firms will soon need to taper off their rate of liquidation, if they have not already done so. indeed, in recent months, there have been fewer reports from industrial purchasing managers that their customers'inventories are too high. moreover, the relative stability of industrial commodity prices in recent weeks, and especially the recent firmness in the prices of semiconductors, could be hinting at less intense stock drawdowns. a slowing in the rate of inventory liquidation will induce a rise in industrial production if demand for those products is stable or is falling only moderately. that rise in production will, other things being equal, increase household income and spending. the runoff of inventories, even apart from the large reduction in motor vehicle stocks, remained sizable in the fourth quarter. hence, with production running well below sales, the potential positive effect of the inevitable cessation of inventory liquidation on income and spending could be significant.