Perhaps foreshadowing more recent market declines and overall volatility, growth in new orders for the aggregated "Measuring and Controlling Instruments" (SIC 382) industry group—so strong during 1997—completely dissipating during 1998's first half, according to U.S. Department of Commerce data.

Preliminary numbers for 2Q98 show new orders for SIC 382 firms were 7.1% below the level recorded during 2Q97. Compared to the first quarter of this year, the industry group's 2Q98 dollar value fell by 5.9%. Total orders for the first six months of 1998 came in 3.3% below 1997's first half, and this deterioration in market conditions was accentuated by June 1998 orders that fell 9% short of June 1997.

SIC 382's shipments were only slightly more positive than orders in 1998's first half. Shipments during 2Q98 were 2.0% behind shipments for 2Q97, and total shipments for the first six months of this year actually came in a slight 0.8% ahead of 1997's January-to-June period.

Clearly, the ongoing Asian economic crisis must take the lion's share of blame for the industry's loss of momentum that less than a year ago made 1998 look so promising. It now likely that SIC 382's new orders will be lower this year than in 1997. If so, this would be the first time since 1989 that new orders failed to grow over the year. Shipments from the industry have risen in every year since 1986. Whatever increase the industry ultimately records, this year looks to be marginal, probably 1%-2% at best over 1997.

Similarly, the Commerce Department's advance report on second-quarter Gross Domestic Product (GDP) showed the economy growing at only a 1.4% seasonally-adjusted annualized rate. This represented the slowest rate of growth in three years, and followed a 1Q98 gain estimated at a revised 5.5%. The major reasons for the sharp slowdown in second-quarter GDP growth were declining export levels and smaller gains in inventory accumulation. Ex-ports of goods and services declined at an 8.0% annualized rate during 2Q98, which was even worse than the 2.8% contraction that occurred during 1Q98.

Business investment in new equipment expanded at a strong 17.8% rate in the most recent quarter, however, which shows that declining corporate profit growth hasn't yet had much impact on companies' capital spending plans for the year. Still, documentation of slowing growth in the nation's manufacturing sector continues to accumulate. Production and new orders trends have weakened in government reports, and manufacturing sector employment has been falling for several months.

Meanwhile, the government's most comprehensive measure of total employer compensation costs, the Employment Cost Index (ECI), showed total compensation rising by 3.5% between June 1997 and June 1998. Benefit costs were up 2.4% over the 12-month period, but the wage component of the total ECI rose by 3.8%. Private industry compensation increased more rapidly in service industries (4.0%) than in goods-producing industries (2.6%). Wage pressures have been increasing as a result of the very tight (4.5% unemployment) national labor market.