The national economy is in a very precarious position. An already weak economy burdened by high levels of consumer and corporate debt and budgetary problems in Washington has been dealt a harsh blow in the form of higher energy prices resulting from turmoil in the Middle East. The majority of economic analysts believe that the United States economy will slip into recession later this year. Others argue that when current GNP data are revised next year, statistics will show that the country has already entered a period of declining output, income, and employment.
 

     There are many factors that suggest the economy is stalling. Housing starts across the country and home sales have declined from earlier levels because of weak demand on the part of consumers. Further, consumer sentiment about the economy has fallen dramatically. This is a very important variable to consider because household spending accounts for nearly 65 percent of all economic activity in this country. Two major surveys of consumer sentiment, the Conference Board Consumer Confidence Index and the University of Michigan's Index of Consumer Expectations both indicate a sharp drop in confidence. The two indices fell to levels close to those associated with the last recession in the early 1980s. As a result it is not surprising that retail sales in third quarter 1990 actually fell by 1.5 percent when adjusted for inflation. Inflation, primarily resulting from higher energy prices, has cut into the budgets of consumers leaving fewer dollars for other kinds of purchases. Inflation shot up by 0.8 percent in September as measured by the CPI. This represents an annualized rate of approximately 10 percent. Hopefully, the price level shock will eventually play itself out over the next several months bringing some stability to the price level. However, if war breaks out in the Middle East inflationary pressures will be greater still. Other indicators and symptoms of the weakness in the national economy include reports that net business formation has contracted. Net business formation has played a crucial role in generating new jobs in the economy over the past decade because many older, larger, and established businesses have cut payrolls in an attempt to remain cost competitive.
 

     Further, the Federal Reserve pointed out that September factory capacity has dropped to 83.6 percent from earlier higher levels. Even though the dollar output for many businesses increased during the last several months, a large percentage of the products have ended up in inventories.
 

     The Wisconsin state economy has for the most part avoided the more severe difficulties plaguing other parts of the country. At the time of this report the unemployment rate in Wisconsin remains well below that of the nation. Furthermore, the Department of Industry, Labor, and Human Relations reports that the number of unemployed in the state, 95,000, is at an eleven year low. So far the diversified industrial mix of the Wisconsin economy and the ability to export its products, aided by a declining dollar in international currency markets, has kept the state on a steady course.