The Fed, however, saw further risks to the downside. In the press release explaining the shift in interest rates, the Fed was quick to point out that capital spending continues to ease. Given the poor outlook for corporate earnings, capital spending will likely slip further through the rest of this year. This is an especially troubling sign for telecom and Internet companies that rely heavily on corporate capital spending for business. Furthermore, the Fed pointed to the reduction in wealth from weakness in the equity markets and the detrimental impact this will have on personal consumption going forward as another reason to cut rates.
Personal consumption accounts for roughly two-thirds of the gross domestic product.
Any slowdown in this segment will, therefore, have a significant impact on the overall economy. For the telecom sector, this means people cutting back on upgrading cell phones, leading to a slowing in the adoption of new phones. This, in turn, could slow the transfer to the 3G phones, which the telecom companies have been betting would spur growth. Many Signs Of Weakness One of the more disconcerting explanations for the interest-rate cut was the risk of slower growth abroad. Whether we are talking about Asia or Europe, it appears that economic growth is slowing.