Croesus/The Investor's View:A curious aspect of the ongoing turmoil in the financial markets is the largely positive signals that are coming from the real economy.

By and large, the data emerging from the real economy continues to be healthy, with the notable exception of property and construction.

The US residential market is in a crisis that looks like running well into 2008. The speed of the onset of weakness in the UK commercial property market where confidence has deteriorated sharply in recent weeks has surprised everyone.

In Ireland the sheer scale of the decline in residential construction has taken everyone by surprise.

The knock-on impact of the deterioration in property and construction sectors is proving to be a bruising experience for the financial sector, and fears that there is worse to come would seem to be well founded.

However, so far most of the economic damage has been contained within the property and financial sectors. Some recent productivity data from the US economy point to an underlying economic situation that remains healthy.

Productivity in the non-farm business sector rose by 6.3 per cent at an annual rate in the third quarter. This was revised up from the preliminary estimate issued on November 7th and is the largest productivity gain since the third quarter of 2003.

This gain came from a rise in output of 5.7 per cent and a reduction in the number of hours worked of 0.1 per cent. The data for unit labour costs was also very encouraging, with unit costs estimated to have declined by 2 per cent on an annual basis in the third quarter, with a favourable revision to a decline of 1.1 per cent in the previous quarter.

Any evidence that inflationary pressures may be abating is highly significant as this opens the way for interest rate reductions by the Federal Reserve.

Another item of positive news was a private report based on payroll data from ADP employer services, which showed that companies in the US added 189,000 jobs in November, much more than the 60,000 expected by economists.

However, not all of the news emanating from the US economy is upbeat. The Institute of Supply Management's index for non-manufacturing businesses, which make up almost 90 per cent of the economy, fell to 54.1 in November from a reading of 55.8 in the previous month.

Readings above 50 signal growth, but the current reading is now at its lowest since March. Since its inception in July 1997 this index has averaged 57.7.

The next big event on the financial calendar is the meeting of the Federal Reserve on Tuesday. Economists at the Fed have scaled back growth forecasts in the expectation that the housing slump and credit crunch will eventually weaken consumer spending.

San Francisco Fed president Janet Yellen is reported as saying that the economy faces a risk "that the problems in the housing market could spill over to personal consumption expenditure in a bigger way than has thus far been evident".

US consumers account for more than two-thirds of spending in the economy and are therefore the key driver of the US economy.

The balance between inflation risk and recession risk has clearly shifted to the latter in recent weeks and therefore a quarter point cut in the Federal Funds rate to 4.25 per cent is widely expected.

The Fed also sets another very important rate called the discount rate, which is the rate at which it supplies emergency funds to financial institutions. Some economists are predicting that this rate will be cut by half a percentage point to 4.5 per cent.

This would narrow the gap between these two rates to a quarter percentage point compared with the normal gap of one point. Such a move would be aimed at easing the credit crisis and ensuring that the US financial system stays liquid over the vital end-year period.

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In Ireland, the Budget was of course the big event this week. The only items of direct relevance to the stock market were the changes in the residential stamp duty regime. Although the reduction in the burden on tax on houses under €1 million is not dramatic, it is significant and is clearly a small positive for the market.

Taken together with the increases in mortgage interest relief and the maintenance of the first-time buyer exemption, Croesus takes the view that this will give a noticeable boost to the market.

It will not eradicate the fundamental excess supply position, but it should boost activity and help the market to reach a more sensible price level and balance between demand and supply.