The future direction of the national economy is uncertain. The volatility in the world's stock markets is symptomatic of this condition. The uncertainty on the part of investors is derived from fears about a rapidly declining dollar, higher rates of inflation, rising interest rates, and a resultant decline in corporate profits. Underlying this scenario are the twin deficits. The federal and trade deficits are, in the opinion of most economists, root causes of the present situation. Even if stock market particiants acted irrationally in response to recent government announcements, their actions will create a drag on national economic performance. The degree and extent of the slow down at the national level is unknown at this time.

     The downward trend of the stock market has decreased the nation's wealth. Although some postulate that this was only paper wealth and somehow not real, it is a real loss in wealth to many individuals and institutions. When individuals experience a reduction in wealth, buying plans are altered especially for postponable big ticket purchases. Institutions find that raising equity capital becomes more difficult with low stock prices. As a result projects and expansions are delayed. The outcome of all of these actions is to reduce economic activity. However, one positive aspect of a declining stock market is the creation of a weaker dollar. This causes Wisconsin industries to be more competitive in the world marketplace, as Wisconsin industries tend to be very sensitive to changes in the exchange rate, much more so than industries in the nation at large. Thus, forecasting the degree and extent of the slow down at the regional level is made more complicated.

     Perhaps the most insidious aspect of the stock market gyrations is simply the uncertainty it creates. If individuals and institutions feel uneasy about the future and take a wait and see attitude, this inaction in itself may create the very slow down they feared.

      The impact of such macro events can overwhelm favorable local economic conditions. The extent to which local economic activity will be affected has yet to be determined. The CWERB will be closely monitoring the regional economy in the upcoming quarters to quantify the impact of the national events.