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Abstract

One word summarizes the current outlook for the U.S. economy. That word is confusion. First, we review the recent behavior of the U.S. economy. Ten years of economic expansion without a recession had led some to believe that we could have continual expansion without a recession. The year 2000 was the fourth year in a row with growth exceeding 4 percent and this was accomplished with relatively stable prices. unemployment was about 4 percent or below what many perceived as a sustainable rate of unemployment without rapid inflation. Stock market prices had increased and some consumers were spending their "new wealth." However, the stock market showed signs of weakness beginning in 1999. That weakness grew, especially for technology stocks and price volatility became much larger. Energy prices also increased in volatility with gasoline, natural gas and electric rates changing frequently except where highly regulated. The economy continued to show strength through much of the year in spite of these problems. Then a series of events led to a major shift in consumer attitudes which began in the final quarter of the year.

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