08/01/2012 09:32 am ET Updated Oct 01, 2012

Glass Half Full or Half Empty

So now everyone is wondering -- what happens to the U.S. economy in the second half of the year. Does it pick up from the meager 1.5% GDP growth in the second quarter or does it slide down further in a pattern that could suggest we are slipping into recession?

A diverse group of Wall Street advisors and other economists remain bullish that the economy is going to pick up because of strong auto sales, a strengthening of the housing sector, a modest fall in gasoline prices, and the possibility that the European Central Bank and the Federal Reserve will initiate new quantitative easing to boost both the European and the U.S. economy.

I don't think this optimism is justified when stacked against evidence in the GDP data that the economy is slowing. While you still see auto sales and housing picking up, overall consumer spending came in at a weak 1.5 percentage points in the second quarter. Exports are still positive, but clearly slowing because of weakness in Europe and the falling euro. Business capital spending is still growing, but the rate of increase is decelerating. Similarly, a lot of the second quarter growth was due to inventory rebuilding which is not likely to continue into the third quarter. Wells Fargo projects 1.2% GDP in the third quarter, which amounts to a "stall speed" that could go negative in response to any policy shock or political blunder.

The stall speed scenario is obvious in the slowdown in earnings forecast for the third quarter. Strong corporate earnings have been one of the bright spots in the struggling U.S. recovery, supporting some modest hiring and substantial capital expenditures, particularly for high-tech products designed to increase productivity. Now, however, the slowdown in revenues due to the slow growth abroad and the squeeze on profit margins from a variety of sources have many firms cutting their earnings projections for the third quarter, with a majority of them suggesting S&P earnings will slip into the red.

My discussion with a wide range of corporate CEOs also supports the stall speed scenario. The majority of them have seen a deceleration in their orders in June and July partly because of the euro crisis, but also because growth in China and immerging markets has been slowing as well. Auto sales have been a standout exception to this trend, but even that critical sector is beginning to show some stall speed fatigue.

Add to these macro forces suggesting a worldwide slowdown, a crisis of confidence in economic ideas, and the inability of decision n makers in the U.S. and abroad to execute, and you have further reinforcement of the stall speed scenario. The fact that the interest rate on the 10 year Treasury bond has fallen to 1.4% provides a measure of the uncertainty and fear that the markets and investors have about the economic future. Regrettably, one is forced to conclude that given the absence of political and policymaking leadership, the glass looks more than half empty.

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.