Economy heading further south?

Last week, the Commerce Department announced that the United State's GDP slowed to 3.1 percent in the first quarter of 2005. Is this just a blip in an economy that has been rapidly expanding for seven straight quarters? Or, is this the beginning of a long-term slowdown?

Based on two measurements alone--investment in equiptment and software and inventories--it looks like we're in for a long slowdown.

Investments in equipment and software grew 6.9 percent, compared to 18.4 percent last quarter. While the slowdown could be a result of four straight quarters of double-digit growth, it is more likely an indication that companies foresee a dismal economy scarred by high energy prices and rising interest rates, which just climed to 3 percent.

More troubling than a slowdown in investment is the build up in inventory. Inventories grew $33 billion to $80.2 billion in the first quarter. With more inventory, goes the theory, companies will be less likely to ramp-up production, thus further slowing the economy.