National economic activity remains surprisingly subdued (Table 1). Lower fuel prices and interest rates did push the annual rate of growth to 3.2% during the first quarter but the level of output stands only 2% above a year ago. Moreover, many economists anticipate a reduction in the estimated first quarter GNP after statistical revisions are made. After slipping during February, industrial production is up a meager .9% from a year ago.

     Although lower fuel prices have yet to have a significant impact on economic growth, the price level effects have been dramatic. The Consumer Price Index, after plummeting .8% in the last two months, is only 2.1 % above the year earlier level. Volatile food and fuel prices are currently dominating movement in the index. After subtracting out the effect of these two categories, the C.P.I. rose .5% in March. This suggests that once fuel prices stabilize, inflation is likely to move into the 4-6% range.

     Reductions in inflationary expectations have combined with easier monetary policy and weak business loan demand to push long term interest rates down significantly. Economists are learning that lower interest rates do not immediately stimulate economic activity as they once did in a highly regulated financial environment. Now that interest rates on small denomination savings accounts fluctuate with market conditions, lower interest rates mean less interest income for a large segment of the population. This partially offsets the traditional expansionary impact of lower rates. However, falling interest rates are very likely to eventually lead to increases in economic activity by stimulating residential construction and capital spending.

     Lower interest rates are clearly a net benefit to Central Wisconsin. Nonetheless, the regional economy appeared weak in. the first quarter.' The March unemployment rate for the region was 9.3%, well above both. the Wisconsin and national rates. However, all three counties recorded modest declines when compared to March of 1985. Regional employment estimates provide the most convincing evidence of a soft economy. Total employment is off .6% compared to last year's level, which was revised down significantly. Only Marathon County showed any improvement-a miniscule .2%. Wood and Portage Counties each experienced employment declines.

     The major source of weakness in the regional economy is the service sector, particularly financial services. Employment in the trade sector is also down from a year ago. These sectors reported a combined loss of 1300 jobs when compared to March of 1985.

     There are signs of improving regional conditions. Manufacturing employment paced by gains in the lumber, machinery, and food processing industries continued to post solid gains on a year-to-year basis. Regional executives appear confident that conditions will improve as the expected change local index surged 10 points. Business leaders are clearly anticipating economic activity will pick up as the result of lower interest rates and fuel costs.

     Adverse trends in the service and trade sectors have affected Portage County more than its neighbors. Service employment is down 10.4% from the March 1985 revised estimate. Trade employment fell 5.5%. Other evidence of a slow first quarter local economy can be found in the unemployment claim, residential construction and bank loan indicators.

     Signs of local economic strength appear in the nonresidential construction data, help wanted index and retailer survey. Bank deposits also posted a large increase during the quarter. These indicators point to stronger local conditions within the next six months.

     The benefits of lower fuel prices and interest rates have yet to have a profound impact on regional economic conditions. In fact, the first quarter was characterized by a relatively weak performance. Slumps in the regional trade and service sectors were the major forces slowing economic growth.