To show how quickly things can change, economic expansion roared just last spring at 5.6 percent. Rod Smyth, chief investment strategist for First Union Securities of Richmond, said the U.S. corporate sector will continue to show declining profit and cut back on spending and staff. These factors will combine to slow consumer spending. Last week's interest rate cut, the fourth this year, could be the stimulus needed for the economy to regain momentum, analysts say. While inventory reductions are progressing and consumption and housing expenditures have held up, capital spending is soft, the Federal Reserve said, following the most recent rate cut.
Lower rates reduce borrowing costs and, theoretically, prompt spending.
Investment strategist Don Hays of the Hays Advisory Group, formerly of First Union Securities in Richmond, said he expects at least another half a percentage point drop before the economy emerges from the doldrums. The stock market already has taken the weakness into consideration. And also remember that the market always bottoms out when conditions look the bleakest. In the late 1990s, equity investments approached 45 percent of household assets, compared with only 15 percent in 1980. The stock market aside, Chmura expects the economy to rebound later this year.