back strongly, strengthening the recovery. However, most analysts did not notice this happening.
With low inflation and moderate sales growth in the early 1990s, most predictions were for only
modest profit increases in 1992 and 1993 (Clark, 1991). This limited the dollars that could have
been invested in capital.
Borrowing to cover the costs of investment may not be an option for businesses. Banks,
caught in a Recession described as financial rather than inventory, were slow to cut long-term rates,
and they lent money to only the most credit worthy customers. Funds were not available to some
businesses at any rate of interest (Clark, 1991).
The tax changes of 1986 could also be blamed. As discussed earlier, this change sharply
curtailed the incentives for business to finance investment.