Is growth slow enough for the Fed to act?

(MoneyWatch) The pace of economic expansion around the world has slowed down over the past two months, but has it slowed down enough to prompt central bank action?

We'll learn more this week, when data on U.S. and Chinese inflation is released. Last month, consumer prices in China spiked by 3.6 percent from a year earlier, driven by an increase in food, even as growth slowed to an annual rate of 8.1 percent. In the U.S., economists and consumers alike are waiting/hoping for a drop in prices, especially if crude oil remains below $100. Perhaps you were focused on the jobs report and missed the 6 percent tumble in crude oil prices last week, as supply is far outstripping demand.

As economic reports come in, investors are battling to determine whether the past 60 days signaled a break in the action or was indicative of a sustained slowdown. If the economy is simply pausing, then there is no reason to think that there will be Fed action, but if things deteriorate in a meaningful way, the Fed governors (and other central bank officials) are likely to do something to boost the economy.

Stepping back from the week to week action, it might be helpful to highlight the economic progress from the bottom, while acknowledging that it has a long way to go.

Economic growth: At the worst part of the recession (Q4 2008-Q1 2009), the U.S. economy contracted by 8.9 percent and 6.7 respectively. We are now growing, but at a meandering rate of 2-2.5 percent. Unfortunately, this is exactly the kind of growth that occurs after a severe financial crisis. As Carmen Reinhart co-author of "This Time Is Different: Eight Centuries of Financial Folly," noted "The recovery looks long...because we haven't had a financial crisis this severe since World War II. Historically, the recovery process from a severe financial crisis has been very protracted. The impact on housing and employment in particular tends to be quite long-lived."

Jobs: The jobs market is improving, but at snail's pace. The economy has added 3.7 million jobs since employment bottomed in February 2010, but there are still about 5 million fewer total nonfarm jobs since the slowdown started in 2007. Additionally, many of the jobs created are disproportionately lower paying ones. According to a recent study by the John J. Heldrich Center for Workforce Development at Rutgers, just 7 percent of those who lost jobs after the financial crisis have returned to or exceeded their previous financial position and maintained their lifestyles.

Housing: House prices doubled from 2000 to 2006, which was unprecedented. Today, prices are down 33.9 percent from the peak nationally, according Case-Shiller. But activity has picked up and there are indications that the market could be bottoming this year. That doesn't mean that housing is set to take off, but the painful slide down should finally stop.

Stocks: U.S. stock indexes have more than doubled from the bottom reached in March 2009, which is great news if you weren't forced to drain your retirement account because you lost your job; had to contribute less because your income was down; or you didn't bail out of the market at the wrong time.

When I discussed the aforementioned to my favorite television executive producer, the response was perfect: "So what you're saying is 'Take a chill pill, America. We are on the mend.'"

-- DJIA: 13,038, down 1.4% on week, up 6.7% on year

-- S&P 500: 1,369, down 2.4% on week, up 8.9% on year

-- NASDAQ: 2,956, down 3.7%, up 13.5% on year

-- June Crude Oil: $98.49, down 6.1% on week, down 0.34% on year (first time under $100 since February)

-- June Gold: $1645.20, down 1.2% on the week, up 5% on year

-- AAA National Average Price for Gallon of Regular Gas: $3.79

THE WEEK AHEAD:

Mon 5/7:

Facebook roadshow begins

3:00 Consumer credit

Tues 5/8:

Walt Disney

7:30 NFIB small business survey

10:00 Job openings and labor turnover survey (JOLTS) for March

Weds 5/9:

Cisco, Macy's

7:00 Weekly mortgage applications

8:30 Wholesale inventories

Thurs 5/10:

Kohl's, Nordstrom

8:30 Weekly jobless claims

8:30 U.S. trade deficit

8:30 Import/Export prices

2:00 Federal budget

Fri 5/11:

8:30 Producer price index

9:55 Consumer sentiment