By John S. McClenahen Between now and Aug. 13, the day of the Federal Open Market Committee's (FOMC) next scheduled meeting, there'll be some unexpected discussion of a possible cut in U.S. short-term interest rates. The assumption was that the FOMC, the Federal Reserve's policy-setting group, would leave the influential federal funds rate unchanged at an historically low 1.75% for several more months -- probably until November. Then the FOMC was expected to gradually increase the federal funds target as the U.S. economy accelerated. But all that was before the U.S. Commerce Department on July 31 released its preliminary estimate for second-quarter GDP. Inflation-adjusted growth for this year's April-through-June calendar quarter was only at a 1.1% annual rate, less than half the 2.3% that economists generally had calculated. During the second quarter, personal consumption expenditures and inventory accumulation were lower than in this year's first quarter. And an 11.7% increase in exports was overwhelmed by a 23.5% influx of imports, costing the economy 1.8 percentage points in growth, figures Bruce Steinberg, chief economist at Merrill Lynch & Co., New York. Also on July 31, the Commerce Department's Bureau of Economic Analysis released GDP revisions going back to the first quarter of 1999. They show, among other things, that the U.S. economy contracted during each of the first three quarters of 2001, more than enough to meet the popular definition of recession as two consecutive quarters of negative GDP. But the numbers do not add up to anything near a compelling economic case for the FOMC to lower the federal funds target rate within the next couple of weeks. One reason is an apparent upturn in capital outlays. "Following six quarters of negative growth, business investment grew by 2.9% in the second quarter," notes David Huether, chief economist at the Washington, D.C.-based National Association of Manufacturers. "The expected recovery in business investment finally appears to be under way." What's more, "we expect domestic demand to be firmer during the second half [of 2002] and trade less of a drag," says Steinberg. He's expecting GDP to grow at a 3.5% annual rate between July and December. Meanwhile, second-quarter GDP growth "probably will be revised up in coming months as inventories are more completely counted," says Maury Harris, chief U.S. economist at UBS Warburg LLC, New York. "Weak reported [second-quarter] output is suspicious, especially since industrial production in [the second quarter] rose at a 4.6% annual rate versus a 2.6% rise in [the first quarter]."