The US economy entered recession in the first half of 2001, with employment falling and industrial production continuing the slide it had begun in mid-2000. The downturn was relatively short and mild. Real GDP increased by ¼ per cent in 2001 as a whole. It declined in the first three quarters of the year, as firms cut stocks and capital spending while household spending slowed. Demand recovered surprisingly quickly after the 11 September terrorist attacks, but the contraction in payrolls persisted until early this year, and the labour market has yet to turn around. Nevertheless, the low unemployment rate prior to the slowdown has meant that, so far, it has not exceeded 6 per cent – well below earlier cyclical peaks and close to what would have been considered full employment just a few years ago. Inflation has receded markedly. Meanwhile the current account deficit has resumed its trend increase. The weak economy has been accompanied by a significant profits drop and a series of revelations regarding misleading accounts and deficiencies in corporate governance, weighing heavily on equity markets and, to a lesser extent, on the value of the dollar.