Domestic equipment spending is expected to slow, but remains strong. Low interest rates and expensive labor are inducing firms to substitute capital for labor, e.g., investment in technology and automation. This pressure is especially strong at the high end of the labor-skill spectrum. The unemployment rate for adult college graduates is only 1.9 percent. But with domestic demand slowing and exports still dropping, growth in equipment spending is expected to slow sharply in 1999.
Interest rates are likely to decline further, making investment even cheaper.
The Federal Reserve has cut interest rates because of worries about the Asian crisis and the recession it could cause in the United States. Although the risk of recession is receding, it is not over. The economy will slow next year, and at least one more rate cut seems likely. The good news is that the Asian economy may be nearing bottom. Currencies have been stable since March, and the stock markets in most of the affected countries have rebounded since the summer.