A Little Less Shine on the Quarter

All of a sudden, the big question for Washington's economic policymakers is not how to slow down a runaway boom, but whether the boom has already run out of gas. Demand is tapering off even more rapidly than the policymakers think is necessary to quell inflation. Second-quarter figures, released last week, show the following:

Growth is slackening. After subtracting the effects of inflation, the real rate of growth in the gross national product was only 2.6%--down steeply from more than 8% in each of the two preceding quarters. The 2.6% figure was the lowest since the final quarter of 1970, when the economy was in recession. Herbert Stein, chairman of the President's Council of Economic Advisers, simply does not believe his eyes:

"I am sure there was more real growth in the second quarter than was reported," he told TIME Correspondent John Berry. "I don't see any indication of a recession. We are not having the big expansion in inventories that usually precedes a recession."

Consumers are more cautious about spending. Retail sales, which spurted at an annual rate of 23% in the first quarter, slowed notably during the second quarter. Purchases of durable goods like furniture and appliances declined slightly. Says Robert Berry, president of San Francisco-based Joseph Magnin specialty stores: "The tempo of retail sales was stronger earlier in the year.

There is a feeling of restlessness and of so many uncertainties now."

Housing starts are down. They declined by 12% from May to June to a seasonally adjusted annual rate of 2,119,000 houses and apartments. Michael Sumichrast, chief economist for the National Association of Homebuilders, offers one obvious reason: "Mortgage money has dried up."

Corporate profits are strong. Alan Greenspan, a member of TIME'S Board of Economists, calculates that second-quarter profits are running 34% ahead of last year--up from the first quarter's 28%. Particularly vigorous second-quarter profits were reported last week by companies in the textile, lumber, oil and chemical industries. The complicated cost-pass-through provisions of Phase IV are expected to crimp profits somewhat, and Greenspan expects the annual rate of increase to decline by year's end to 20%--which would still be robust.

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