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.''
The downward revision of GNP largely reflected a worse trade balance than was previously estimated. If you and I spend a larger percentage of our incomes on imported, rather than domestic, items, we are spending the same amount of money, but it doesn't directly benefit American workers.
Following the same reasoning, if we make a product that might be sold abroad but run into foreign resistance, we get fewer dollars into this country to pay workers in our export industries.
Goldman expects that the US trade balance will begin to improve. But much of this improvement will probably come from a boost in economic growth in Europe and not from the weak dollar. Close to 30 percent of US exports go to Europe, so a pickup in major economies such as that of West Germany should be of some benefit.
Close to half of US exports, however, go to areas in which the dollar's decline is not going to help. Some 27 percent go to Canada, for instance, which has a currency that has actually been weakening against the dollar. Fifteen percent go to Latin America. Most currencies there are loosely tied to the dollar; moreover, economic conditions make those countries weak candidates for increased US exports.
Actually, if one adds those countries whose currencies are tied to the dollar to those exports that in an earlier decade might have been expected to respond to exchange-rate changes (such as agricultural products), one comes to hope very much that West Germany and Japan will suddenly experience higher growth rates. In other words, the pickup in US foreign trade is still problematic.
This does not mean recession is just around the corner. But neither should one assume that the economy is going to strengthen substantially just because the second half of 1986 has arrived.