β Scribed by Marc Louargand
No coin nor oath required. For personal study only.
The US economy is in a generally weak condition at mid-year 2001. Virtually all manufacturing-intensive regions are in recession. The share of the labour force filing new unemployment claims is running just below the levels attained in the 1991 recession. Corporate profits have declined substantially in the past four quarters. Corporate profits in the USA grew at an average rate of 7.4 per cent since the 1991 recession. During the past four quarters they have declined by 3.7 per cent. With the exception of the petroleum, chemicals and fabricated metals industries, all manufacturing sectors have seen profitability declines. Retail trade is continuing to eke out meagre gains, while the financial sector profits grew by nearly 8 per cent in the past year.
As the US expansion crawls weakly into its tenth year, the inevitability of job losses and inventory build-ups in the face of any slowdown in consumption or economic growth can be seen. The past ten years have seen astounding increases in productivity compared to any previous expansion. New technologies have combined with new business models to unleash powerful forces in the world's economies. However, technological innovation typically produces productivity gains that create excess capacity and the need for exit. That exit takes the form of declining profits, lay-offs and eventually bankruptcies by those firms that are unable to adjust to their changing environment. The excess capacity may lie fallow for some time, but it is more likely that innovative uses will be discovered and excess capacity will be soaked up quickly by them. This cycle of creative destruction and rebirth depends heavily on the free flow of capital to support innovation and product and market development. In recent years in the USA, this type of capital has been supplied by venture capital (VC) firms which raised their funds from institutional investorsprimarily pension plan sponsors. It is thought that the amount of capital flowing through this channel grew so rapidly it created a leasing bubble in the property markets.
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