“Two debates going on right now are how much more the economy will slow and what the state of growth and corporate earnings will be when the economy recovers,” writes Jonathan Fuerbringer in today’s New York Times.

“The Bush Treasury, in a statement Tuesday to its Treasury Borrowing Advisory Committee, was relatively optimistic. But some other signals are not.”

” ‘Overall, while we cannot dismiss uncertainties about the progression of recovery in the business sector, it seems plausible that the worst of the slowdown may be behind us,’ the Treasury statement said. ‘The July Blue Chip private consensus forecast estimates real growth of 3 percent in the fourth quarter. At this point, there is little reason to believe that forecast would be far off the mark.’ “

“The statement also noted, however, the crushing impact on the economy this year of the sharp drop in corporate earnings.”

” ‘The withering of capital investment reflects a combination of developments,’ the statement said. ‘Excess capacity, resulting in some cases from over-investment but in others from the current weakened demand, was one factor. In addition, a widespread profit squeeze caused not only investment plans to be slashed but also private payrolls to be cut by 350,000 workers during the second quarter.’ “

“Because corporate profit forecasts are still declining, the job-cutting and the decline in capital investment could continue and finally drag the economy into a formal recession. In the second quarter, when the economy all but halted with inflation-adjusted growth of just 0.7 percent at an annual rate, overall spending by businesses and consumers actually fell. It was only a spurt in state and local government spending that kept the economy above water.”