Although the economy remains dangerously in the line of hostile fire, the U.S. economy managed to dodge a bullet during the first half of this year. With a few more skillful dodge and weave maneuvers, the odds are improving that we'll be able to get through this long, unsettling period of economic angst relatively unscathed compared to other downturns.

Although the government estimates that the U.S. economy expanded by an anemic 0.7% during the second quarter of 2001 – the weakest quarter of Gross Domestic Product (GDP) growth since 1992 – the fact is that it did grow. Furthermore, revised estimates show that positive GDP gains held up through late 2000 and over the first quarter of this year. With the widely accepted definition of recession requiring at least two consecutive quarters of negative GDP, we're still not even halfway there.

However, there's no room for smugness among those who have been relative optimists about the economy's short- and medium-term prospects. If the U.S. economy is able to completely skirt a recession this time around, it will be solely because consumers remained steadfastly (if apprehensively) positive in their outlook about the long-term future. It certainly won't be because of any vote of confidence coming from the business sector.

The second-quarter 2001 GDP numbers showed consumer spending for goods and services increasing at a 2.1% annual rate. This is down from 3.0% growth over the previous two quarters, but still solidly positive. Over the same period (April-June 2001), however, business spending was plummeting. After growing by an average annual rate of 11.5% over the previous 9 years, business investment in new equipment and software fell by 4.1% during the first quarter of 2001. Then it followed that with a 14.5% annual rate of decline during the year's second quarter.

Has the economy hit bottom? We believe so. However, there are still plenty of risks remaining that could undermine what, even under the best of circumstances, is likely to be a fragile recovery during the second half of this year and into early 2002.

But consumer spending (representing fully two-thirds of the nation's GDP) should be buoyed in the months ahead by three positive factors: 1.) Income tax rebates; 2.) Lower energy costs; and 3.) The delayed stimulative impact of the Fed interest rate cuts that began in the earliest days of 2001. And this should be just enough to get us over the hump.