American consumers have tightened their purse strings since the Sept. 11 terrorist attacks. In capitalist economies, the downtrend in consumption is disturbing for the future of the world economy.
Normally, the business cycle fluctuates with changes in inventory buildup and capital investment -- not consumption. In good times, businesses increase capital spending. As inventories pile up and supply exceeds demand, production is reduced and investment is curbed.
A downturn resulting from an investment slump can be expected to end in a few years because (1) investment, as a percentage of GDP, is only about one-fourth of consumption and (2) investment usually follows a cyclical trend.