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A bouncier 2nd half is not certain; much rests on trade pickup

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IN another week, we start the second half of the year. That's the half the economists have been saying would be stronger for the United States. But will it be? Last week the Commerce Department released its second revision of the first-quarter gross national product, marking it down this time from 3.7 percent to only 2.9 percent (at annual rates of growth).

This is hardly robust growth, and the statistics that have been coming in during the second quarter don't look very strong, either. Unemployment edged up slightly in May, for instance, to 7.3 percent. Industrial production fell 0.6 percent during the month. Capacity utilization stands at only 78.6 percent.

The question that isn't fully answered is whether falling interest rates, falling oil prices, and the decline in the dollar have already had their beneficial effects on the American economy or are still to be felt in the second half of the year.

Falling interest rates are certainly one factor in the strong housing market. Without that, the first half of the year would have been nowhere near as strong as it's been. But falling oil prices have been partially offset by economic problems in the Southwest. And the falling dollar has not yet resulted in any major improvement in the trade balance.

In its monthly report on the economy, Goldman, Sachs & Co. contends that there must be an improvement in the trade picture and an increase in inventory building for the economy to gain further strength. ``Real disposable income growth must be buoyed by accelerating employment gains and by some pickup of wage growth. These, to a large degree, depend on a strengthening of domestic production, which, in turn, depends on the US foreign trade balance beginning to improve and on some pickup in inventory building.''


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