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Contraction Of Economy And Its Effect On The Country

2001:Contraction Of Economy And Analysts’ Optimistic Views

April 2001

Despite the Federal Reserve’s continued slashing of interest rates--down 100 basis points to 5.5 percent--the stock market continues to slip. The Nasdaq fell below 2000 March 13 and the Dow Jones slipped under 10,000 March 14.

Economic conditions, however, continue to be mixed throughout the country and analysts are optimistic about a recovery sometime this year from this economic readjustment.

While the Federal Reserve’s monthly survey in March revealed sluggish or mixed economic activity in five of 12 regions of the United States, some growth was reported in the seven others.

Warning against panic-driven bankers cutting back on credit and borrowing, the Federal Reserve, however, stressed that prices are stable and wage pressures are easing.

Spending, meanwhile rose slightly in most of the country throughout the first two months of 2001.

Amid the gloomy media reports, consumer spending rose in January at the fastest pace in four months, according to the Commerce Department, and income grew .6 percent. The increases were the largest since September.

Further, the Labor Department said that 135,000 new jobs were created in February, following 224,000 in January.

The bright spot in economic reports prompted several analysts to question talk of an impending recession, although consumer confidence continues to slip--hitting its lowest point in five years last month. The U.S. Central Bank, for example, predicts a second-half rebound from the current sluggish expansion.

Federal Reserve officials have repeatedly stressed that pessimism about the economy has been overblown. They are expected to slash interest rates yet again to prevent further contraction of the economy.


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