Moving towards a recession Economic performance in the United States (USA), Western Europe and Japan according to economic indicators such as the growth of output, investment, employment and wages, has been getting worse in each downward phase of the business cycle since 1973. The current cycle in the USA, which began in early 2001, has been the worst of all. Gross Domestic Product (GDP) growth has been the slowest in any comparable cycle since the 1940s; growth in investment is down 30% and the creation of jobs is down 65%. In addition, hourly wages have not increased in real terms since 1979. This forms the background for the current economic problems that began in 2007. Many economists believe that the USA economy is now in recession. Falling house prices have reduced the ability of homeowners to borrow against their property, which in turn reduces their ability to spend freely on consumer goods and services. This fall in consumer spending has led to businesses hiring less labour in some industries, which has further slowed consumer spending. The construction of new homes has fallen, with sales of new homes falling even faster, resulting in a large oversupply of homes, which will continue to force down prices even more. The USA Federal Government is considering tax cuts and additional government spending to stimulate the economy, even if this increases the budget deficit. The hope is to encourage consumer spending and business investment although this may add to inflationary pressures. The chairman of the Federal Reserve (the central bank) in the USA has indicated that he is happy to support the use of fiscal policy by lowering interest rates. Cuts in indirect taxes and direct taxes affect production costs, disposable income and the spending power of consumers, and have an impact on the allocation of resources (factors of production). They may also have a psychological effect on investors.