In the business sector, a serious retrenchment in spending and production was under way. In addition to the initial causes of the pullback, the abruptness of the slowing seemed to jar business confidence, leading firms to postpone spending while they reassessed their situations. In this way, the investment downturn became self-reinforcing.
At the same time, financial developments, including a stronger dollar, sharply lower equity prices, and tighter lending standards at banks and in security markets, tended to offset some of the influence of the lower federal funds rate. By midyear, investment--and high-tech investment in particular--was posting some of the largest decreases in decades.