The good news for 2001 is our economy has managed to stay clear of a recession. However, the economy has fallen to a remarkably low growth rate and is in a precarious position. The Federal Reserve's portrayal of the U.S. economy is one of "slow growth or lateral movement." As corporate profits sink and huge layoffs are constantly being broadcasted, consumer confidence has begun to seesaw. Consumer spending is the key to preventing the economy from declining further; it accounts for two-thirds of economic activity. Thus, while corporations refrain from capital expenditure, the average consumer could be the one to lift our economy from it current malaise. This outcome is very possible as the unemployment rate holds at 4.5%. In fact, the unemployment rate is capable of increasing to between 5.5% and 6.0% while maintaining a non-inflationary GDP. Another positive aspect of the present economic situation is the lack of inflationary pressure. With tame inflation, the Fed is free to cut interest rates in an effort to stimulate the economy.
Gross Domestic Product.
Gross Domestic Product in the first and second quarters of 2001 came in at 1.3% and 0.7%, respectively; well below the 2.3% and 5.7% for the same periods of 2000. While these growth rates are incredibly weak, they are still expansions rather than contractions of the economy. This year's main strength has been the spending patterns of consumers and the government. Businesses" reduction of capital investment and continued cutbacks in inventory stocking have been the major contributors to its slowdown. As long as company profits are low to nonexistent, the economy's growth will be restricted by the flat business investment. However, we do not anticipate GDP will carry on at such low rates. By September when people begin spending their tax rebates, consumers will begin to make an even bigger contribution to economic growth than they have recently.