Editor's note: Mutual of America Capital Management Corporation presents the following review of economic trends prevailing in the third quarter of 2001. Comments reflect conditions as of September 20, 2001.

The economy
The U.S. economy, which has been struggling to maintain positive growth in recent months, will no doubt be impacted by the terrorist attacks that shocked our nation, and will probably see negative growth for a period.

Consumers have kept the U.S. economy on its feet as corporate profits and business investment have slowed, but consumer confidence will be tested in upcoming weeks. Declining mortgage rates will hopefully bolster confidence and spending. Government spending will help boost Gross Domestic Product as defense and security expenditures rise.

Although the Federal Reserve's pledge to keep liquidity in the system could keep the economy from slipping into a deep recession, the level of uncertainty has risen. The Fed cut interest rates 50 basis points just prior to the stock market's reopening.

While the economy could slip further than previously thought, there is a growing opinion that this will allow a stronger or V-shaped recovery. For the remainder of this year, the U.S. economy will likely be weak, but the combination of monetary stimulus, lower rates, government spending, and a leveling of consumer confidence should see growth rebound sometime in 2002.

The international picture
As would be expected, the aftershocks of the terrorist incidents have spread globally. Although Europe, Canada, and others lowered rates in tandem with the Fed, other problems will continue to impede the global economy's recovery.

Trade across North America's national borders has been far from free after the attack, having been slowed by new security measures. Just-in-time inventory management techniques have caused plant closures, especially for automakers. Airline restrictions have slowed the flow of goods between the United States and Asia to a crawl. Japan, already in recession, is especially vulnerable. Fully 40 percent of the bilateral trade between the United States and Japan last year was carried by air. Hopefully, Europe will be a beacon in these times by providing fiscal, monetary, and political support.

The stock market
The stock market had settled into something of a trading range prior to the tragic events that took place on September 11. The U.S. equities market remained closed for a record number of days as rescue workers, city officials, and communications experts struggled to repair the damage in New York's financial district. While the cost of human life cannot be repaired, the market reopened on September 17. The market sold off significantly, but in an orderly fashion.

Investors are currently dealing with the uncertainties of a continued possible economic slowdown, along with political and military actions. However, as these uncertainties subside, the market, hopefully, will expect an economic rebound sometime in 2002. Ideally, stocks will bottom out and begin to move in anticipation of a recovery led by the consumer.

Market volatility will likely remain high throughout 2001, as corporate earnings and management outlooks are reported, and our government responds to the recent terrorist attacks.

The above article is for general information only and is not intended to provide specific advice or recommendations for any individual. Consult your attorney, accountant, or financial or tax advisor with regard to your individual situation.

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