Although most observers now believe the economy will expand at a sluggish 2%-to-3% pace in the second half, economist Sam Nakagama of Nakagama & Wallace Inc. has looked at the latest statistics emanating from Washington and concluded that business activity is headed south. "At best," he says, "the economy will be flat in the third quarter before contracting in the fourth."
Nakagama points out that a number of key indicators have been weakening since May. As the unemployment rate rose between May and July, for example, total hours worked, the average workweek, and payroll jobs in goods-producing industries all fell. At the same time, housing starts dropped 6.4%, and the production indexes for autos, trucks, defense and aerospace, instruments, and textiles products registered declines ranging from 1.5% to 7.3%.
Says Nakagama: "We're experiencing a broad slowdown in economic activity, which was caused by the slowdown in U.S. monetary growth and is being exacerbated by slumping economies and tight monetary policies overseas."