After the golden age of the 1990s -- a time of unparalleled growth, low inflation, low unemployment and a consumer that just couldn't be stopped, there had to come a time when enough was enough.

The combined effects of last year's

Fed hikes, the jump in energy prices, some cold weather and the gut-wrenching downturn in the stock market have led to a profound cooling in both consumer and business demand. That, in turn, has prompted manufacturing slowdowns, higher production prices per unit, layoffs, depressed consumer sentiment and, well, just a sad state of affairs.

It's also led to a major inventory overhang -- concentrated in the beleaguered auto sector.

The pace of inventory clearing is key to how quickly the economy can come out of its slowdown,

Fed

Chairman

Alan Greenspan pointed out in a

speech he gave Feb. 13. Rising inventories are a sign that demand is not keeping up with production, which in turn implies further production cuts and an even

further

slowing in the economy. When inventories begin to get worked off, it's a sign that demand is outstripping production and the economy is reviving.

Car Talk

In December, auto inventories were up a staggering 13.2%, according to the

Commerce Department's

latest

Manufacturing and Trade Inventories and Sales report -- a sign that sales slowed much more than the carmakers had anticipated.

Diane Swonk, chief economist at

BankOne

in Chicago, credits most of that to the weather. "December was bad -- the snow in the Midwest had auto workers unable to get to the factory and fleet deliveries postponed," she says.

Wind, snow, sleet and hail don't encourage too many potential buyers to stroll around car lots, either.

With the breaking of the cold weather in January, and aggressive discounting by the automakers, there was a thaw in car sales. On a seasonally adjusted annualized basis, there were 17.2 million light vehicle sales -- down 5.4% from January 2000, but up 11.7% from December's pace. February's car sales, due out from the Big Three this week, are projected to be less than last month's, but still relatively healthy.

"I don't make conclusions based on one month's sales, though," says George Pipas, sales analysis manager for

Ford

(F) - Get Report

. "But I see that consumers are still spending, and consumer sentiment is more about what consumers see in the future -- people are worried about what's going to happen." Pipas potentially sees car sales slowing in the third or fourth quarter.

As for inventories, Pipas suggests that because automakers were prepared for a slowdown in sales even before the economy began to cool, any overhang should be contained.

"Sales were up 11% for the first quarter of 2000 compared to the first quarter of 1999, so everybody -- not just Ford -- has been planning for this year to fall well short of last year," he says. Moreover, he notes that Ford's January sales this year were ahead of what the company expected -- another suggestion that inventories will be quickly brought down to normal levels.

"

Auto production has been slaughtered for three quarters in a row," BankOne's Swonk says. "That will drain more than 1% off GDP this year, but that's not necessarily bad news, because most dealers expect they'll be done with their inventory correction in March or April -- and then production can pick back up.

"Though there are year-over-year declines in the auto industry, three years ago, we'd have been popping champagne bottles at these January numbers," she said. "We're starting to settle down into a more sustained pace, and we expect this year to be the fourth best-selling year in history."

Consumer sentiment will play a big part in what happens with the auto sector this year. If consumers aren't confident about the economy, they're not going to buy cars. No confidence equals even lower demand, which feeds the vicious production cuts and layoffs cycle, further eroding consumer sentiment. It can become a self-fulfilling prophecy.

But Swonk believes that the Fed's interest-rate cuts will begin to warm the economy as needed. As inventories are cleared this spring, she says, mortgage-refinancing money is going to be pumped into the economy, feeding demand.

So buckle up, and try to enjoy the ride.