MUNCIE, Ind. -- The message of a recent federal report on the second quarter of 1998 is clear -- the national economy is significantly slowing down, says a Ball State University economic analyst.

The real news in the Bureau of Economic Analysis's report on U.S. Gross Domestic Product (GDP) is that American consumers paid little heed to the collapsing export markets, or the other disruptions that have been battering manufacturers all summer, and heady spending helped stay the course for the economy, said Patrick Barkey, director of the Bureau of Business Research.

The GDP figures represent the most comprehensive accounting of the economy, and preliminary estimates that show overall growth dipping to a 1.4 percent annual rate in the second quarter, down from a 5.5 percent rate in the previous months, are an irrefutable sign of change in the economy's growth path, he said.

Having grown at a rate above its long term trend for more than two years, economists have expected a slowdown for some time, Barkey said.

"But the manner of this particular course change for the economy differs from what might be termed the ‘classic' pattern of decline, if such a thing can be said to exist," Barkey said. "That pattern might entail weakening business and/or consumer spending, perhaps due to inflation, rising interest rates, and lower rates of job growth, choking off spending, and ultimately causing output to contract."

The U.S. economy at the mid-year point, however, shows none of these symptoms. Interest rates are low, inflation is nearly non-existent, and both businesses and consumers are spending with gusto, he said.

Consumer spending during the second quarter grew at a 5.8 percent rate, only slightly lower than the 6.1 percent growth during the first three months of the year. The second straight quarter of double-digit growth in spending on consumer durable goods was a big factor in producing that result, Barkey said.

While business spending slowed from red hot to merely hot, the situation for spending by foreigners on American produced goods went from bad to terrible, he said.

Barkey points out that the export picture continued to worsen, with the fall accelerating to an 8.0 percent rate in the second quarter, from a 2.8 rate of decrease in the previous period.

These declines are an abrupt turnaround from a segment of the economy that as recently as the fall of last year was growing at a 13.5 percent rate, he said.

"The statistics on second quarter economic growth resemble those on the report card of a good student who is struggling inone class, Barkey said. "While no one knows exactly when the Asian malaise that has hammered U.S. exports will bottom out, there is some solace in the fact that, at least until now, that troubling situation has not yet caused any of the larger dominoes that support the general economy to fall.

(NOTES TO EDITORS: For more information, contact Barkey by E-mail at pbarkey@wp.bsu.edu or by phone at (765) 285-5926.)