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June 15, 2001

Manufacturing Recession Will Spread

The protracted recession in the manufacturing sector will definitely bring down the rest of the economy, as the current slowdown continues.

Manufacturing productivity recorded the biggest drop since January. This is the eighth straight month that manufacturing productivity has declined, making it the longest downturn in 20 years. To compensate for this decline in productivity and profits, manufacturers will soon be passing a greater portion of their fixed costs on to their customers. And this will cause even more economic damage when businesses have difficulty absorbing these price increases.

Meanwhile, this month's CPI report continues to show inflation creeping into the economy. Inflation in May rose at an annual rate of 4% compared to just 3.4% in all of 2000. And even though the high prices are mostly concentrated in the energy sector, inflation is still a concern. Consumers are having to allocate more of their funds to filling their gas tanks, and that means there's less money to spend on other items. In fact, this month's retail sales clearly show the impact of high gasoline prices.

With the manufacturing sector already in recession, and businesses and consumers cutting their spending, the entire US economy is behind the wheel of a brakeless vehicle heading to Recessionville. Make sure you're ready for the ride.

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