As the economy comes off its summer peak, the whir of activity is less superheated. Housing has slowed and consumers are slaking their desire to pour gasoline into the tank at prices approaching $3.50 a gallon.
Although growth bounded to an annual rate above 5.5 percent in the year’s first quarter, analysts are unsure whether the current pace is anywhere near that level. Ho-hum sales at many of the nation’s retailers suggest that Americans are becoming slow to unleash their wallets.
That brings us to Friday’s report of second-quarter gross domestic product. Chicago economist Robert Dederick is looking for it to show expansion at an annual rate of 3 percent–not too hot and not too cold.
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“A lot of the air has gone out of the economy’s balloon since the first quarter, as some sectors have throttled back,” said Dederick, of RGD Economics. “The causes are obvious: higher energy costs and rising interest rates.”
On the bright side, he said, joblessness has remained stable.
“However, there still are many questions about what will happen during this year’s second half,” Dederick said. “Were the economy to cool further, it would fall below its trend, as some members of the Federal Reserve are forecasting.”
What else to watch:
– In two weeks, the central bank gathers to discuss monetary policy. A majority of analysts expect interest rates to go up for the 18th straight time, to 5.5 percent. They “need to walk a fine line because the stock market has been held hostage to the Fed. Investors are becoming very, very concerned,” said Chicago investment manager Marshall Front of Front Barnett Associates. At this point, according to Front, there are sufficient signs of economic slowing that a pause in the tightening campaign would be justified.
– For investors, the drumbeat of second-quarter corporate profits has been decidedly mixed, with roughly half of companies yet to report. Wall Street’s main worry is that consumers may start to pull back on spending.
–William Sluis, [email protected]