Expectations about the future also improved to 74.8 in May from 67.8 in April. This is good news, but still recovering from a low base.

Shopping plans, particularly for big-ticket durable goods, were encouraging. Refinancing picked up in late 2012 and early 2013; in the context of rising home prices, that is allowing consumers to redeploy  savings on home remodeling, repairs and vehicle purchases. The pent-up demand in all those areas is substantial.

Bottom Line: Those who doubt the efficacy of the Federal Reserve’s quantitative easing just need to look at the resilience of the U.S. consumer. The recoveries in both equity and home values are having an impact on the real economy.

A better measure of inflation is the personal consumption deflator (PCE); it includes more services and is weighted by how consumers shift spending across sectors in more accurate measures of the change in price levels the consumer is actually paying; the PCE is currently running even cooler than the CPI.

Separately, the Cleveland and Dallas Federal Reserve Banks produce trimmed price measures in which they try to get at the best, underlying inflation trends. The Dallas Fed excludes two extremes in any given month’s price measures; that is, statisticians pull out the largest increase and the largest decrease from the data. For example, one month in the mid-2000s, the Dallas Fed found the largest increase in prices occurred in coffins while the largest decrease occurred in guns; the Director of Research surmised there might be a correlation.

No matter how the price data is cut, all indicators of inflation show a disturbing trend toward decelerating price inflation. Moreover, all price measures suggest we are getting dangerously close to losing any buffer zone on inflation, which is extremely costly. (Japan offers the  best example of these dangers, with its two “lost decades.”)

Separately, it is extremely important to delineate between inflation or the change in price levels and actual prices. Gasoline prices remain elevated, for instance, despite recent declines. (Chicago is one of the few markets not to experience big declines.)

The government data is far from perfect, but it is better than data elsewhere. Mistakes are easier than manipulation, given how the statistical system is set up. It executed by people who have been in their jobs through multiple administrations on both sides of the aisle. They are stat nerds, who care deeply about doing the best they can, and their debates are at the most minutia level of mind numbing detail, but I am glad they are there. The data is also gathered across agencies, which makes it even more difficult to “manipulate.”

(I have spent a lot of hours with our nation’s statisticians; they are a remarkably competent, politically deaf, and thankfully boring group.)

The Consumer Price Index (CPI) fell 0.4% in April, largely in response to a sharp drop in prices at the pump. We also saw some discounting in apparel as retailers pushed to clear the shelves of spring merchandise after a chilly March. More encouraging for the federal deficit, which is now shrinking, was a decline in medical care services last month. The moderation in medical costs has been one of the pleasant surprises for both consumers and deficit hawks in recent years. The jury is still out over whether the moderation is cyclical (because people out of work don’t have insurance) or structural (efficiency gains in the medical industry); it is probably some combination of both, which means the decisions we have to make about entitlement spending are not as dire. The narrowing of the deficit and slowdown in medical inflation, however, seem to have fed complacency on the federal budget instead of opening the door for compromise. A true opportunity lost if it persists.

Separately, real wages jumped 0.5%. The drop in prices at the pump acted like a tax cut and helped support wage and spending growth during the month.

Finally, jobless claims moved back above the 350,000 threshold to 360,000 during the week of May 11. The report said that there were few signs of sequester cuts, which have been delayed most notably at the Department of Defense. Also, the seasonally unadjusted claims actually declined during the week, which may be more a reflection of problems with the seasonal adjustment than renewed weakness in the private sector. One week does not make a trend.

Bottom Line: The economy is moderating but not falling off a cliff. Unfortunately, the worst of the headwinds associated with the sequester are still ahead of us, which means more speed bumps over the summer, especially in light of ongoing gridlock in Washington.

We are also seeing weakness in equipment production, which is a partial reflection of the late spring and inability to get crops planted. Investment in new equipment also remains lackluster.

Separately, the effects from sequestration and the pullback in Iraq and Afghanistan are beginning to show up in defense production. The bulk of the direct cuts associated with sequestration have been delayed until summer. The Department of Defense couldn’t believe Congress would allow such broad-based and sensitive cuts to occur, so officials dragged their heels on implementing them. Indeed, it appears the private sector is well ahead of the government sector in dealing with the cuts, which should not be a surprise. It will be interesting to see how strong the resolve of Congress remains as key districts absorb a disproportionate amount of cuts. One can only hope some pragmatism seeps into Washington.

Bottom Line: Industrial production is just another in a series of data points suggesting the economy has weakened but is not collapsing in the second quarter. Along with subdued inflation, however, it will mean steady-as-she-goes on monetary policy come the June Federal Open Market Committee (FOMC) meeting. We do not see the Fed being able to taper yet.

The only major increase in the index for finished goods in April was pharmaceuticals, which rose 0.6%. Pipeline inflation, which shows intermediate and crude materials, was also down for the month. The other outlier was a sharp 15.5% jump in natural gas prices, which is not likely to persist given production in the energy sector and efforts to free up natural gas markets south of the U.S. border in Mexico.

Bottom Line: Inflationary pressures continue to abate amid signs that the economy is once again slowing. The risk is that prices abate further given the lack of interest in curbing cuts from sequestration over the summer. Look for a delayed hit to medical care costs in the broader consumer price indices this summer, which will limit reimbursements to doctors and hospitals. Recent reductions in the deficit seem to have relieved pressure on our elected officials to compromise but could ultimately increase the burden on the Federal Reserve to do more, whether that helps or not.

Gains were broad-based, with the biggest increases in spending showing up at building materials and garden stores (people could finally plant and make outdoor repairs after a frigid March), discount stores, apparel, electronics and appliance stores, online and sporting goods stores. Discretionary spending also came back with an increase in spending at restaurants.

How is the consumer doing it? Revisions to the employment data suggest the cushion on income was likely greater than initially reported. Refinancing also continued at a rapid clip in the first quarter and the savings associated with that restructuring is being spent. Prices at the pump plummeted (with the exception of Chicago). All of this, along with the wealth effects tied to recent stock market gains and housing, more than offset the drag that tax hikes have had on employment as we moved into spring.

The biggest obstacle going forward is sequestration (mandated spending cuts), which has been delayed by most government agencies as they are hoping Congress will come up with a fix. The irony, of course, is that Congress will only fix what it can see, so until the employment losses start hitting key Congressional districts, a fix is not likely. This represents a downside risk now to the third quarter.

Bottom Line: Those who doubt that the Federal Reserve is making an impact just need to look at debt restructuring and wealth effects on spending. There is no way the consumer would be holding up so well without the support of lower interest rates. Indeed, aggregate debt levels have now fallen enough to allow for some to start leveraging back up; that is key to more robust growth down the road. Imagine how rapidly unemployment would be falling if fiscal drag were on hold, instead of intensifying right now.

The government sector shed 11,000 jobs, less than expected. Losses were concentrated at the federal level, which represents some early signs of weakness related to sequestration (automatic, across-the-board spending cuts). More sequester-related effects likely emerged in the private sector, where government contractors were forced to implement unpaid furloughs for some employees. Average hourly earnings moved up, while the average number of hours worked declined.

Separately, the household survey shows that the unemployment rate edged down slightly from 7.6% in March to 7.5% in April. That is the lowest we have seen on the unemployment rate in five years. The good news is that the number of long-term unemployed fell and that the decline in the unemployment rate was for real this time; it was not because of a drop in the participation rate, as we have seen in recent months. The bad news is that it appears many of those workers were forced to accept part-time over full-time employment. Indeed, the number of people taking part-time work, just to have a job, increased more than the number of long-term unemployed declined.

Bottom Line: The economy continues on its path of healing, but gains remain uneven and too-concentrated in low-wage sectors for us to reach escape velocity. This will keep the Federal Reserve in the game of increasing its balance sheet in June.

Finally, monetary accommodation is seen by many (especially in Germany) as a shortcut to delay, rather than accommodate, the deep structural reforms that many economies are conducting. Despite efforts to negotiate the terms of European austerity, we do not see yet a change in course. European countries are likely to opt for a less compressed schedule for fiscal consolidation, eventually providing some room to breathe for the embattled economies at the periphery. But fiscal consolidation and market reform remain at the top of the policy agenda. ECB President Mario  Draghi is trying , at most, to accommodate this policy framework, but not to undermine it with a more aggressively expansionary monetary policy.