May 14, 2001

Next Stop -- Recessionville

The manufacturing sector crossed the border into recession months ago. Industrial output has fallen for seven consecutive months. And capacity utilization fell to 78.5% -- the lowest since 1991...when we last had a recession. But the journey has not ended.

Even with the huge slowdown in manufacturing, businesses haven't been able to reduce inventory significantly. As of March, stockpiles stayed on the shelves for an average of 1.37 months -- that's a two-year high! Factories have already cut more than 370,000 jobs, but with inventory on the shelves despite reductions in production, factories will lay off more workers as orders come to a halt.

The rest of the economy is already following the manufacturing sector over the cliff to recession. In addition to job cuts by factories, other business sectors have axed employees in order to offset the cost of unsold inventory. But we're only in the beginning stages of layoffs for these sectors. As more jobs are lost, consumer confidence will buckle and consumer spending will plunge, sending the rest of the economy down that road to recession.

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