Ebb and Flow Ends With Rising Tide

"With volume growth slowing and labor costs rising, it is no wonder that profits growth is now struggling," writes Kasriel. "It is doubtful things will turn around soon unless Circuit City's (CC Quote) plan to effectively cut the salaries of many of its employees becomes the norm." (On Wednesday, the electronics retailer fired 3,400 workers -- namely its highest-paid -- in an effort to cut costs and improve profits.)

Wall Street initially cheered the revised fourth-quarter GDP report, but traders soon realized that it wasn't all good news, not to mention relatively old news. On the upside, the Commerce Department reported inventories, and the trade deficit and government spending added more to GDP than prior estimates. Personal spending was unchanged, and equipment and software spending and residential construction were revised lower. Commercial construction finished higher.

The weaker business spending underscores Wednesday's weaker-than-expected report of durable goods orders as well as Bernanke's comments. Indeed, many noted Wednesday that Bernanke's subtle tilt toward neutral may have come more from concerns about business spending than from the ubiquitous housing woes.

In his testimony, Bernanke notes the Fed has observed softening in demand for other capital goods than those related to housing and auto industries. "The magnitude of the slowdown [in spending on capital equipment] has been somewhat greater than would be expected given the normal evolution of the business cycle," reads the testimony.