STEVE INSKEEP, Host:
David, good morning.
DAVID WESSEL: Good morning.
INSKEEP: What's the government likely to tell us?
WESSEL: Well, with so much data already reported, economists have pretty good guesses on the economic growth estimate. They expect the government to report that the economy grew by better than three percent in the second quarter, which is substantially better than the 0.7 percent in the first quarter. But a lot of that is due to temporary factors that probably won't be repeated in the rest of the year.
INSKEEP: Temporary factors that won't be repeated in the rest of the year. What do you mean?
WESSEL: Well, the trade deficit fell an unusual amount in the second quarter and there was a lot of production to rebuild inventories that probably won't be repeated. The thing that people are really watching for in these numbers is how slow was consumer spending in the second quarter and how much will that continue into the rest of the year. Consumer spending is finally beginning to feel the effects of the housing slump, and that's starting to worry people.
INSKEEP: Well, let's talk about a little bit about that. Here's an indication that consumers may be running out of money. Countrywide, a huge mortgage lender, has reported an increase in late payments on home equity loans. And of course those are loans that people took out to buy stuff.
WESSEL: Right. The Countrywide thing is significant because it's one of the early warnings that the problems in the mortgage business are not limited to people who got subprime loans - as they're called - low income or poor credit history people who are now not making payments on their loans, but it's starting to spread up the ladder to more higher grade loans. And that's the thing that has worried people, that if this subprime thing spreads to the rest of the housing industry, that that really threatens consumer spending.
INSKEEP: Does this mean that after all these years of saying Americans have too much debt, Americans have too much debt, it's finally catching up with us?
WESSEL: It could be. It is sort of interesting that people continue to pay off their credit cards though. Even people who seem to have their houses going into foreclosure are keeping up their credit cards. What mostly seems to be happening is that the long predicted slowdown in the rate of growth of consumer spending is at hand. It doesn't mean that people are all going to stop spending and the economy will grind to a halt. But for a time the economy will be propelled not by consumers, but by business investment or hopefully exports.
INSKEEP: How's the rest of the world doing?
WESSEL: The rest of the world is doing surprisingly well. The last four or five years have been one of the most remarkable strings of growth in the global economy, and that's a good thing at a time when the U.S. seems to be slowing down. Europe seems to finally have found it's footing and is growing relatively strongly by their historical standards. And even Japan seems to be awakening from its slumber.
INSKEEP: So if the rest of the world is growing rapidly, can that help the Untied States escape some of its problems at home?
WESSEL: Absolutely. When the U.S. economy slows because consumers start to save a little more or borrow a little less, one of the things that can pick up the slack if everything works perfectly is stronger demand from overseas consumers, whether they're in India, in China, Japan or Europe. And there seemed to be some very hopeful signs that that's exactly what's happening now.
INSKEEP: And is there still enough manufacturing in the United States to take advantage of that?
WESSEL: Manufacturing is still a good portion of our exports, but selling to the rest of the world is not just manufacturing. When Japanese or Chinese tourists come to the U.S., that's a kind of export they spend here. When people come to get an American education or American health care, that's a kind of export. And of course we export a lot of services, whether it's journalistic services or financial services. So the short answer to your question is yes, there's enough manufacturing for us to take advantage of exports. But exports are much more than manufacturing now.
INSKEEP: David Wessel of the Wall Street Journal. Thanks.
WESSEL: You're welcome.
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