It is growing slowly, with low inflation and interest rates. As we look forward to 1996, we do not believe that the current slow growth means that we are on the verge of a recession. Some signs of slowing are already visible. Businesses are decreasing their spending on durable goods, inventories are being kept down in anticipation of declining demand, and corporate profits are not growing at the rate they did in 1994. Exports have been strong, but the strengthening dollar and slowing foreign economies indicate reduced demand for exports in the coming year.
Consumer sentiment is down and spending has slowed, reflecting an evermore cautious consumer.
Consumer debt levels remain on the rise, although the picture on debt is muddied by the fact that people are increasingly using credit cards instead of checks and cash to pay for goods. More positively, growth in personal and real estate loans has slowed considerably. Most economists and investors expect the Federal Reserve Board to lower short term rates further in the coming months to give this slowing economy a boost. It appears that this expectation is largely priced into the financial markets. It makes sense to us that the Fed will want to stimulate growth, but we also know that it is very sensitive to any signs of inflation.