(FORTUNE Magazine) – IN THIS SPRING of economic uncertainty, the financial markets continue to fret. If the dollar no longer seems likely to collapse, it could still head down in a hurry again if investors are disappointed in the results of the summit meeting in Venice. Many fear that a renewed decline would mean higher inflation and interest rates. Major U.S. banks are starting to face the realities of their Latin American loans, a welcome development but also a source of worry since tougher lending policies could torpedo economic growth south of the border (see page 26). Still another crosscurrent of anxiety: Growth is slipping in the U.S. Yet the economy keeps lumbering on, deflecting obstacle after obstacle. Concerns about rapid inflation should be withering away soon, and long-term interest rates may already have peaked. After climbing at a robust 4.4% annual rate in the winter, real GNP seems likely to rise only 1.5% this spring, based on early numbers. But the drop looks like just another of those zags in the saw-toothed growth pattern that has prevailed since late 1984. Though final sales are recovering from last quarter's decline, inventory accumulation is slowing. Some forecasters think inventory should continue to grow this spring at the rapid $37-billion pace of the winter. Their reasoning: Other than the bulge in car lots, inventories showed little change in the first quarter; since the overall inventory-sales ratio is lower than historical norms, other industries will want to build stocks. But FORTUNE's quarterly survey of inventory policy has shown clearly for some time that business has fundamentally overhauled its inventory control and would like the ratio a notch lower than it is now. Industries other than Detroit are unlikely to increase accumulation quickly enough to offset the halt in car stockpiling this quarter. After a stumble in the last two quarters consumer spending is rebounding, but it doesn't have a lot of staying power. The reported savings rate in April is close to zero because of huge payments to cover capital gains taxes on the flood of asset sales at the end of 1986. Even adjusted for that one-shot item, the savings rate is still pretty puny at around 3%. Judging from the dip in car sales in early May, consumers are pulling in from their April spending pace. At best, they will increase outlays along with incomes. The drive for the next few quarters will come partly from stronger capital goods spending (see story below) and mainly from improvements in foreign trade. In the last two quarters the volume of exports has grown 5% and imports have eased 1% -- and the impact of the two-year fall of the dollar has only begun to make itself felt. The dollar has been bouncing around in a narrow range for a month. It survived a short-lived burst of price increases in commodity futures. One reason for the resilience: Other than oil, commodity prices no longer have a big effect on most industrial economies. There's no question that the earlier decline of the dollar is raising U.S. prices, as most economists predicted. But that's nothing new. The trend has been running for several quarters, and the impact is limited to perhaps one point in the rate of inflation. Rising import prices have let domestic companies fatten their profits a little more than FORTUNE expected a few months ago. But margins shrank because operating profits after taxes held steady in the first quarter, while production rose. Although they may expand modestly from now on, profit margins will not add much to inflation since capacity utilization is still on the low side. Pay raises may be accelerating a bit, but no big spurt looms. Hourly earnings for all companies, adjusted to eliminate the effects of overtime in manufacturing and of mix changes between industries, increased at a 2.4% rate the last two quarters, vs. 1.5% in the previous two. With real earnings down -- partly as a result of higher import prices -- compensation gains are likely to grow to around 4% by next year. Given just a modest improvement in productivity, unit labor costs won't rise much faster than 3%. Total consumer prices have climbed at an annual rate of 5% since January (see chart), a big pickup from 1986 when lower oil prices helped keep the rise to 1.2%. Excluding volatile energy and food, the inflation rate also hiked up to 5%, from 3.6%. Because the dollar is likely to decline more gently now, the rise in import prices should gradually slow, and consumer inflation should ease to 4.5% or so in the next few quarters. And what of interest rates? With both the dollar and inflation better behaved, the Federal Reserve will feel less pressure to boost its discount rate or restrict bank reserves to lift short-term rates again. The 6% inflation premium built into long-term rates is well above the likely actual rate. Some hint of a shrinking premium in yields may already have appeared at the end of May. The narrowing should continue, squeezing down bond yields and mortgage rates. The lower long-term rates, in turn, should encourage a moderate speedup in economic growth later this year.

CHART: NOT AVAILABLE CREDIT: ILLUSTRATION BY JAVIER ROMERO CAPTION: A Not-So-Scary Rise Taken as a whole, inflation looks to be on a strong upward course. Excluding volatile food and energy prices, however, it has picked up much less. DESCRIPTION: Consumer prices excluding food and energy; all consumer prices, third quarter, 1985 to end of April 1987; Color illustration: Price tags as kites.