For more than a year, the economy has been chugging forward at a solid growth rate averaging more than 4 percent. With such bustling activity, businesses flush with profits should be frenetically lining up to hire more workers.

But a cool summer, coupled with an unprecedented surge in the cost of oil (it’s up more than 80 percent in 16 months), has tipped the economy back on its heels. Job seekers remain plentiful, but companies are showing a reluctance to hire. Consumer spending has slackened.

That brings us to Friday’s report on second-quarter gross domestic product. First reported at 3.0 percent, analysts are fretting that economic expansion will be revised lower.

Economist Sung Won Sohn says a reduction of the number is likely, because both inventories and exports acted as a drag on growth.

Sohn, of Wells Fargo & Co., says the problems with petroleum helped prompt him to reduce his forecast for second-half growth, to 3.5 percent from 4.5 percent.

“That’s a difference that will mean a failure to create hundreds of thousands of jobs,” he said.

Economists will carefully monitor the next employment report in early September, Sohn said, to see whether payrolls are growing.

“We have had a string of negative reports, and any more bad news would mean the expansion is slowing to a 2 percent rate,” he said.

Although the rest of the economy remains iffy, the real estate market continues to boom. Get ready for more blockbuster numbers with July existing home sales Tuesday and the month’s new home sales Wednesday.

An index of home-builder optimism reported last week that the mood in the industry hit its highest level since October 2003. Meanwhile, the latest report on housing starts showed construction responding to the best two months of home sales on record.

Sales of new homes hit a new high in May and were the second strongest ever in June. Building permits, a sign of future activity, also increased.

Less than a month remains before members of the Federal Reserve gather to discuss interest rates, and most seers expect the central bank to notch its short-term bellwether rate another quarter-point higher, to 1.75 percent.

As recently as June, it stood at 1 percent.

Chicago banker Kenneth Skopec says the pressures coming from oil prices will feed further inflation, and the Fed isn’t finished raising rates.

“As an example, look at the reductions in flights at O’Hare. The result inevitably will be higher fares,” said Skopec, of MB Financial Bank.

Fed Chairman Alan Greenspan, he says, “has committed himself to continuing an organized pattern of rate increases.”

At the next meeting Sept. 21, however, Skopec sees policy-makers holding steady, waiting to take action until after the fall elections.

The stock market continues to falter with red ink to show for the first eight-plus months of 2004. The biggest worry:

Some businesses are starting to ratchet down earnings expectations for the second half of the year.

Chicago investment adviser Doug Nardi, however, sees the market finishing on a high note in the next few months.

“Equity market performance has proven more difficult than (we initially thought),” he is telling clients in his latest market letter.

Nardi, of Scudder Private Investment Counsel, says the market’s dour mood can be blamed on the surging price of oil, fears of inflation, higher interest rates and poor payroll growth, among other factors.

Looking ahead, however, he says, “we reiterate our forecasts for domestic equity markets to return 5 percent to 10 percent in 2004.”

He cites an upcoming drop in petroleum prices, more new jobs, an end to uncertainty about the elections and “strong underlying fundamentals, earnings growth and valuations.”

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(c) 2004, Chicago Tribune.

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AP-NY-08-20-04 1843EDT