2001 Recession: What it is and Why It Matters?

As the economy headed into recession in 2001, businesses faced a classic pattern: they were producing more goods than customers demanded, causing inventories to build up. Companies then adopted painful measures to get production back in line with sales by cutting payrolls and slashing capital spending. Those austerity measures then radiated throughout the economy, as they do in economic downturns, reinforcing any weakness that already existed. By early 2002, the economy had worked through the worst of the unwanted inventories, setting the stage for an important turning point. In past cycles, with their shelves all but empty, firms typically increased production to restock their inventories, thus ushering in the first stage of renewed business investment.  That restocking often provided a powerful boost early on in economic recoveries.