Signs of a sharp business slowdown are mounting rapidly, and some economists now suspect the nation's economy may already be shrinking, not growing.

"Although domestic demand was strong, we now believe that gross domestic product declined at about a 1% rate in the second quarter," Bruce Steinberg, chief economist at Merrill Lynch & Co., said Friday.

In the latest such sign, the U.S. trade deficit widened to a record $15.7 billion in May, as exports to Asia's crippled economies plunged an extraordinary 21% on a year-over-year basis.

"The U.S. economy is being subjected to an immense production shock," Mr. Steinberg said. He said he believes collapsing exports sliced 2.5 percentage points from the economy's second-quarter output and "a huge inventory correction" cut at least another three points.

These data may focus even more attention than usual on Tuesday's semiannual Humphrey-Hawkins testimony to Congress by Federal Reserve Chairman Alan Greenspan.

Economists and others will be listening closely for signs from Mr. Greenspan that the Fed will now consider cutting short-term interest rates.

At the last such session, in February, the Fed chairman said in effect that the risks of inflation and deflation were almost balanced. As a result, the Fed was uncertain which problem to try to preempt and took no action.

"Since February, the risks have tilted away from inflation toward a meaningful slowdown in growth," said economist Neal M. Soss of Credit Suisse First Boston. "Mr. Greenspan will soon reinstate the doctrine of preemption and declare his readiness to cut rates, if necessary."

While the Fed could easily tolerate a moderate slowing of the U.S. economy, "anything more would risk postponing Asian economic recovery still further and possibly sinking other parts of the emerging world," said Mr. Soss and his colleagues Dominic Konstam and Jay Feldman.

Indeed, at least one economist said he worries that the Fed, with several determined inflation fighters on its Federal Open Market Committee, could wait too long to cut rates despite changed global economic conditions.

"We think it is going to take time for the FOMC to get its arms around the need for easing," said Paul A. McCulley, head of economic research for the Americas at Warburg Dillon Read, New York.

"It is a global case, and quite frankly, the FOMC is not populated with strong global thinkers," he said, "except most importantly, Chairman Greenspan."

In fact, Mr. McCulley said, two separate and strong strains of anti- inflation thinking exist on the committee, led by Fed Governor Laurence H. Meyer and Cleveland Federal Reserve Bank President Jerry L. Jordan.

"Together, these two camps are a strong force against easing" credit, he said. In fact, he added, it is likely that Mr. Greenspan has had to persuade his fellow policymakers not to raise rates.

Mr. McCulley said many on the committee probably want more domestic justification for any easing, for example, "that some gainfully employed Americans lose their jobs and-or lose some of their wealth invested in the equity market."

The economist said he thinks this is "a highly risky approach" by the "custodian of the global reserve currency in a deflationary world."

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