The manufacturing sector is already in the throes of recession and there is huge excess capacity in the real economy, with an overhang of unused equipment. Capacity utilization today is already at recession levels. The capital spending boom of the 1990s has run its course, and companies will begin to cut back on spending in the next several months in the face of a profit squeeze induced by rising unit labor costs and the inability to raise prices. Capital for new investment and high-tech startups is also drying up. Washington will fumble the opportunity for fiscal stimulus as the Republicans focus on getting Bush's poorly structured tax cut passed, and the Democrats focus on stopping it in the name of preserving the surplus.
Consumers are up to more than their eyeballs in debt.
Actually, household debt is at its highest levels as a portion of disposable income in history. The only thing that will keep demand up is Greenspan's rate cuts, which may lead to a new round of home refinancing that will keep the economy chugging for a while longer until the excesses in the manufacturing sector are whittled away. Weak Global Economy. Europe and Japan are too weak to pull the world economy along, and Latin America and Asia are still financially fragile. Japan has been in a period of recession and stagnation for ten years.