Economic statistics for the nation strongly suggest that the past year was quite robust.  Real GDP grew to 7.5 trillion or by 4.6 percent from 1997.  Industrial production in the country shot upwards by a remarkable 6.8 percent.  Interest rates and inflation also behaved in a benign manner over the past twelve months.  Short term borrowing rates fell from 5.12 to 5.00 percent and prices increase by a scant 1.7 percent over the period.  However, even with this good news there is evidence the economy slowed during April-June.  The economy is estimated to have grown by just 1.4 percent, down from the 5.5 percent annual rate of January-March.  Accounting for the slow down in second quarter was: the large inventory buildup of first quarter; the strike at GM; and of course the financial situation in Asia. 

     Perhaps the most pressing problem confronting the U.S. economy at this point in time is the economic woes of Asia.  The first notice of this problem was in July of 1997 when Thailand devalued in its currency.  Since that time many countries throughout the far east have had to deal with the consequences of the mismanaged economies.  This has meant that countries like Indonesia, Korea, Thailand, etc. are now being forced by financial market pressure and the International Monetary Fund to undergo painful restructurings of their economies.  As a result of this, the currencies of these nations have fallen in value in relation to the U.S. dollar. 

     Initially these devaluations have had a positive impact on the U.S. economy.  For example, low cost imports have helped to keep domestic inflation in check and create a low interest rate environment in this country.  However, as this Asian scenario unfolds it is clear that our economy will be affected in an adverse manner.  A group of leading Wall Street economists are forecasting that it will be six to nine months before the full impact of the Asian situation will be felt.  That is, it will take this much time before lost sales to Asia take a really big bite out of corporations who export to that part of the world.  The loss of demand will cause some firms to lower production and layoff workers.  If there is any good news in this scenario it is that inflation and interest rates will remain abated without having to have Federal Reserve intervention.   

     As implied by the aforementioned, with Asian countries less able to import our goods and services and with their products being so attractively priced, one could guess that our trade balance will worsen.  Case in point our trade deficit has set record for four months in a row.  It is very likely that this trend will continue for the rest of the year. 

     The biggest unknown at this juncture is the situation in Japan.  Japan, the second largest economy in the world, is now mired in a recession that is its worst in fifty years.  Further, it seems that the Japanese government is unable or unwilling to deal with this financial sector lead problem.  No one, including our Federal Reserve, seems to know how large the problem is in terms or bad loans on the books of Japanese banks.  However, some individuals have estimated it could be at least several times larger than our own saving and loan crisis of the 1980s.  Clearly, if Japan sinks further into its economic malaise the yen will likely fall sharply against the dollar.  The impact would most likely cause our economy to stall, if not enter into a mild recession.  Also, if the Japanese currency falls, China may be forced to devalue its currency to remain competitive in world markets.  This would make a bad situation worse for U.S. firms.   

     Will the U.S. and Wisconsin economies fall into a recession during the last half of the year?  The consensus among business, governmental, and academic economists is that the U.S. economy is so fundamentally from an internal aspect that the Asian situation as it now stands will cause growth to slow, but now cause a recession.  Currently just 13 percent of our economic output is related to international trade.  So while this represents a significant amount of economic activity it does not dominate our economic situation.  In comparison, consumer expenditures on domestically produced goods and services account for about 67 percent of all economic activity in this country.  Rising income levels, low inflation, and low interest rates have created a very strong domestic situation.  This is evidenced by the strong numbers being reported for retail sales and home construction.  Thus, spending by American consumers is now pitted against the downward pressure of the Asian situation in determining the future direction the economy.