NEWS AND COMMENTARY
March 29, 2001
Whiplash or Head-On Collision?
This economic slowdown is more like a head-on collision than a case of "economic whiplash". And some companies and individuals may need the Jaws of Life if it continues. It's taken three revisions, but we're just now getting a clearer picture of the steep drop-off in growth that occurred in the fourth quarter of last year. GDP reports for first quarter 2001 will probably be even worse as America grinds into a recession.
But one thing is certain, everybody is beginning to feel the pain of the slowdown. A parade of companies ranging from dot-bombs like Pets.com to retailers such as Montgomery Ward have gone out of business or filed for bankruptcy protection. Still others have laid off hundreds of thousands of workers. The bad news has already sent the stock market floundering.
There's the potential for plenty more bad news. Our nation's energy supply is very vulnerable. Violence in the Middle East, energy crises in California and other western states, and more OPEC cutbacks could send oil and gas prices skyrocketing as the summer months approach. Higher fuel costs can quickly put the brakes on corporate profits.
In addition, businesses have pared down on making investments for future growth. Falling stock prices have made it more expensive for companies to borrow, so they've piled on debt to pay bills. These debts are likely to drag down once-healthy companies as earnings shrink to nothing in the coming months. As bad as the fourth quarter was for GDP and the economy as a whole, the first quarter looks grim and the second quarter will be downright scary.
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