In this article, authors Cooper and Madigan address the transition from a booming economy to one of slower growth. However, the authors contend that the transition will be smooth as opposed to a crash because of the recent ability and willingness of consumers to keep spending, albeit at a slower pace. One of the biggest hurdles in making the transition to a slower economy smooth was excessive inventory levels, lender nervousness, and a slowdown in foreign economies. Yet, consumer spending rose “a strong 0.7% from December” which helped create much smaller inventory levels than a month before (25).
The authors argue that stock-level adjustment, productivity, and energy prices have all contributed to the economic slowdown. Still, the authors see a rosy scenario for the future because of the fact that these cyclical indicators and measures will turn-a-round later this year “Looser labor markets and lower energy prices are likely to relieve some of the cost pressures” (25). So, too, the Chairman of the Federal Reserve, Alan Greenspan, remains upbeat about the slowdown and the future productivity of the American economy. His quick action in cutting interest rates and the speedier flow of information due to technology have enabled the economy to adjust more quickly to the slowdown. Still, capital spending remains a hurdle that must be leapt, in order for the economic transition from a booming to a slow-growth economy to be smooth. The gap between capital outlays and cash flow “has never been so wide” (26). Yet, the authors insist that as long as consumer demand (both national and abroad) remain at current levels, the slowdown in capital spending should derail the economic transition.
Cooper, J. C., and Madigan, K. Adjusting to slower growth needn’t be traumatic. BusinessWeek. Feb 26, 2001, 25-26.
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