05/24/2011 11:20 am ET Updated Jul 24, 2011

A Summer Global Slowdown

The optimism sparked by an ever rising stock market, a raft of successful initial public offerings, such as LinkedIn's astounding debut and continuing strength in manufacturing, may be distracting us from growing evidence of a summer global slowdown.

First, U.S. economic data showed a general slide in the first quarter when GDP came in at a disappointing 1.8 percent, and preliminary data for April and May suggest that is continuing into the second quarter. The Philadelphia Fed manufacturing index of business activity dived to a seven-month low of 3.9 from 18.5 in April and March's 27-month high of 43.4. Housing sales and prices continue their interminable swoon, which is a serious drag on the overall economy and likely to remain through 2012.

Second, the generally weaker U.S. data are echoing trends in Asia and Europe where banking authorities are tightening credit to fight inflation. The important Japanese economy shrank at a 3.7 percent annual rate in the January-March period, even worse than was expected. Europe continues to wrestle with its debt crisis which is fostering uncertainty and undermining growth. The Economic Cycle Research Institute's leading indicators have turned down which suggests a global slowdown this summer. We are already seeing some signs of growth already slowing in India and China.

Third, the Federal Reserve's decision to formally end QE2 , which has fueled the liquidity driving the recent rally, will also have an impact. The Fed will not tighten rates, but at the same time liquidity will shrink while government spending is phasing down. In short, government policy will be restrictive in the second half of this year.

Fourth, the continuing stalemate over raising the U.S. debt limit hangs like the sword of Damocles over the global economy -- not just here but everywhere. The next deadline for action is August 2, well into the summer. The prospect of that uncertainty continuing for more than two more months is perhaps the most worrisome thing of all. The single best thing that Washington could do would be to pass a debt ceiling extension with meaningful entitlement reforms, such as reform of Social Security.

And finally, it is altogether possible that all those black swans we've been reading about -- debt crises, floods, earthquakes, nuclear meltdowns, Mideast uprisings -- are finally having an impact on business confidence. My advice to everyone is to be careful until some of this begins to shake out. I do not foresee a double dip recession, but continuing growth at or below 2 percent is sufficient reason to be cautious this summer.

Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements.