(November 30) – “For the last decade, even as the United States economy has soared, corporate profit has paled next to the boom in companies’ spending on new computers and software, industrial machinery and buildings,” writes David Leonhardt in today’sNew York Times.

“With the help of bank loans, bonds and most of the time, a willing stock market, companies since 1991 have bought almost $9 trillion worth of equipment, lifting productivity and sustaining the longest economic expansion in American history.

“Now, however, that explosion in investment is showing broad signs of slowing. Corporate profits are falling in many industries, giving companies less money to spend. Banks have tightened their lending policies, raising the cost of money. And the swoon of technology stocks has forced the very companies that have made some of the most substantial investments in new equipment to reconsider how they operate.

“With consumer confidence falling at the same time, analysts say the moderation in capital spending has raised the odds that the economy will markedly slow next year.
Some see an increased risk of recession.

“‘The slowdown has arrived,’ said Jerry Jasinowski, president of the National Association of Manufacturers, reacting to a downward revision in the gross domestic product. ‘The remaining question is how hard the landing will be.'”

“And Henry Kaufman, a longtime Wall Street economist known for pessimism, remarked, ‘We’re moving into a different phase of economic and financial behavior than the one we’ve been in for the last four, five years.’ Mr. Kaufman sees a one-in- three chance of a recession in 2001.

“In the third quarter, capital spending grew at an annual rate of 7.8 percent, about half its pace in the previous quarter, the Commerce Department said yesterday. Many analysts expect this to fall below 8 percent next year for the first time since 1992.

“Last quarter’s slowing helped cause the economy to expand at just a 2.4 percent annual pace from July through September, the lightest quarterly bump in four years, the department reported in its regular revision of gross domestic product data.

“And capital spending now appears unlikely to provide much of a lift in the year’s final months, as it did during previous lulls in the long expansion, thanks to purchases of computers and Internet-related software. In October, orders for durable goods those expected to last at least three years fell 5.5 percent, more than twice as steep a decline as analysts had predicted, the Commerce Department said on Monday.

‘On the face of things, a slowing of investment hardly seems to present the economy’s biggest potential problem. Virtually all economists expect capital spending in the construction of new warehouses, the laying of new telephone wires and the purchase of new office computers, among other things to outpace the rest of the economy easily in 2001.