The economy’s performance was mixed in January-March (Q1) 2007. Although real GDP expanded 3.3% (annualized), industrial production fell for the first time in six quarters. In fiscal 2007, the economy will slow in the first half as exports and personal consumption weaken, but pick up in the second half as the U.S. economy improves and domestic wage growth stimulates consumption. We predict real economic growth of 2.0% in fiscal 2007 and 2.1% in fiscal 2008. However, to sustain the recovery, income growth must steadily spread from the corporate to household sector by three routes—wages, interest income, and dividend income—to generate consumption-led growth.