CONDITIONS DETERIORATE FURTHER
Mount Kisco, NY, July 20, 2001-There has been some improvement in the inventory-sales
balance and
some modest easing of pressure on manufacturers, but the economy’s problems are increasing,
according to the Levy Institute Forecasting Center. This recession is a lot more than an inventory
cycle
and the longer term problems will not vanish even if a temporary inventory stabilization is
achieved. The
latest issue of The Levy Institute Forecast reveals:
· "Rapid Federal Reserve action in the first half of 2001...indirectly limited the deterioration
of nonfinancial activity. Nevertheless, the overall situation has continued to worsen."
· "Thanks to a powerful surge in mortgage refinancing...the personal saving rate remained
virtually flat." However, "refinancing activity is now waning" and "all influences are now
pushing for a higher saving rate in the second half."
· "...With refinancing activity now falling rapidly, the other, universally unfavorable influences
on consumers will in all probability bring about a rising saving rate, seriously hindering
businesses’ efforts to get inventories back in line."
· "Even if inventory liquidation slows temporarily, a multitude of greater economic and
financial problems loom." The long-term problems of "severe overcapacity and record debt
ratios encumber nonfinancial industries. ...They will increasingly manifest themselves in
tightening credit conditions, declining investment in equipment and construction, rising
personal saving, plummeting exports, and pockets of deflation."
· The international situation continues to deteriorate. "Economy after economy is falling into
recession. A sign of deflationary global situation: the Knight-Ridder-Commodity Research
Bureau futures index for industrial materials fell to a quarter-century low last month."
· "In recent years, faith in the power of the Federal Reserve to lift the stock market by
cutting interest rates became a pillar of the bull market. ...The inability of the stock market
to begin a sustained rally after a full six months of dramatic cuts in interest rates raises the
question, "Is something different this time?""
David A. Levy, director of the Levy Institute Forecasting Center, explains, "The Fed will need to
continue
battling the storms and to get a sizable assist from tax rebates and cuts if it is to reestablish
growth and
stability in 2002. If it succeeds, the price will be an even greater debt bubble."
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