(FORTUNE Magazine) – The economy lost some zing in the first quarter of this year, then lost a little more in the second quarter. Ominous trend? Not at all. Like a veteran hurler, the economy has more than made up for the loss of smoke on its . fastball by developing some career-extending pitches. The excessive inventory building that lifted GNP growth last year has eased. Strength in business investment and exports has made this year's slower growth better balanced. FORTUNE anticipates that the pace of GNP growth will slow a bit more in the next few months. This may seem surprising in view of the widespread concern about the possibility of overheating, inflation, and higher interest rates. Moreover, recent statistical flashes from Washington seem to attest to vigor in the economy -- factory orders surge, the leading indicators show their biggest gain in nearly 18 months, and employment keeps rising. Taken all together, though, the economic signs point to a mild slowdown rather than a speedup. External trade and capital goods in particular will not contribute as much to growth as in the first half. Moderation in these two sectors, along with some additional inventory paring, can bring GNP expansion back to a sustainable pace.

A mild slowing in the economy is just what we need to avoid inflation and higher interest rates and prolong the expansion. But voters may not like it. A ''beneficial'' slowdown is a subtle concept and may be a hard sell for the incumbent party. But wait. Doesn't longevity count for something? After all, this is the Nolan Ryan of economic expansions. Won't the gains in employment and income during its long run, together with the subduing of inflation, play well in the polling booths? Not as well as you might think (see The Economy).

Social scientists who attempt to construct models of voter behavior say the ballot casters tend to focus on what happens in the economy during the last few months before an election rather than on the economy's performance over four or eight years. Voters are strongly influenced by the direction of change. A high unemployment rate that is moving down may be better for the incumbent party than a low rate that is moving up. Therein lies the irony of the present outlook. The slower growth that FORTUNE foresees would be favorable for the longer-term prospects but could have unpleasant short-term effects on precisely those things voters watch most closely as election day nears. Unemployment may well tick up before the election. The slowdown in GNP growth will restrain growth in real per capita income; that is a sensitive matter to voters, according to statistical analyses of their behavior. The inflation rate will probably rise a touch, the ^ result of already inevitable increases in food prices and wages. The Administration would prefer to have growth pick up a little or hold steady. But the chances of avoiding a discernible deceleration are slim. FORTUNE expects GNP to advance at a rate of only about 2% in the second half, vs. better than 3% in the first half. The chart on the preceding page makes it apparent that a slowing trend has already set in. But the chart also shows that GNP growth in recent quarters was a lot faster than earlier measurements had indicated. In July the Commerce Department issued revised figures for GNP growth over the past few years, and the upward revisions for some quarters were substantial. The deceptively strong-looking growth in the last quarter of 1987 reflected an extraordinary and unsustainable surge in inventory expansion. The increase in nonfarm inventories was $68 billion at an annual rate, $50 billion above the previous quarter. (These figures are in 1982 dollars.) All by itself, that leap accounted for five percentage points of the 6% rate of GNP growth last autumn. In this year's first quarter, the rate of buildup declined only modestly, and the lingering inventory overhang figured prominently in forecasts of recession. INVENTORIES did not collapse and take the economy with them, but the piling up slowed. That has been the main factor in the mild slowing of GNP growth so far this year. Had it not been for a decline in inventory accumulation, the rate of GNP growth in the second quarter would have been 5% rather than the 3.1% reported. To picture too much of a good thing, imagine what a 5% GNP growth rate would have done to the inflation-wary financial markets. FORTUNE's quarterly survey of how businesses view their current inventory position provides clues to the outlook. Inventory/sales ratios are low by historical standards, but of the more than 200 managers who responded to the survey, most told FORTUNE that they would like to continue the squeezing. The paper industry, where demand has been straining production capabilities, was one of the few segments where inventories were deemed too low. Yet executives give no indication that they are in a rush to liquidate stocks. Instead they seem content to let rising sales pull their inventory/ sales ratios down to desired levels. More than 60% of those surveyed -- up ten points from just three months ago -- told us they would rather risk having too much inventory than too little. The respondents don't want to miss opportunities for sales, and they don't want to disappoint their customers. Businessmen also are starting to worry about shortages. In all, 18% noted that they were placing extra orders in fear of possible future shortages -- double the percentage of the preceding quarter. What to make of this mix of desires for yet lower inventory ratios and concerns over being caught short? FORTUNE concludes that the net will be a dip of about $8 billion in the rate of nonfarm inventory accumulation in this quarter. The dip will contribute to the projected slowdown in GNP growth. Then, through the end of 1989, we expect the annual rate of accumulation to stay in the vicinity of $27 billion, well under half the 1987 high (see chart). As long as the rate of inventory buildup stays constant, it has no effect on GNP growth rates. AS INVENTORY CHANGE turns neutral, the economy will also be getting less push from exports and business investment. Export growth has already slowed from a 24% annual rate in the first quarter to 8% in the second. We expect continued export growth in the range of 5% to 7%. The second quarter import decline won't be repeated. That 6% drop added a percentage point to the rate of GNP expansion -- imports hold down domestic output, so a minus for imports is a plus for GNP. A lot of imports had been going into inventories, and the drop was partly a consequence of the inventory slowdown. Any further decline in import volume will be moderate. Growth in business investment is also headed for moderation. It surged in the second quarter, but in the Commerce Department's latest capital spending survey, executives projected smaller increases the rest of this year. Orders for nondefense capital goods also point to less vigorous growth in investment. A robust June boosted orders to a new peak, but that was misleading. Nearly all June's burst was in aircraft orders. Airlines and aircraft lessors have been ordering aggressively this summer. The long lead times in aircraft manufacturing mean that the spike in aircraft orders will not show up in capital spending later this year. Instead, planemakers' well- filled order books will provide lift in civilian aircraft production for some years beyond. With orders for other kinds of capital goods coming along at a subdued pace, FORTUNE sees growth in business investment slowing to a rate of something like 4% in the second half of this year, vs. around 10% in the first half. ! All in all, the evidence of deceleration in the economy is good news. The secret of this expansion's longevity has been its ability to avoid excesses and keep its balance. In economic expansions as in pitching, control is more important than speed. During its sixth season, this old-timer is still throwing strikes.

BOX: OVERVIEW -- The prospect of slower growth improves the expansion's life expectancy.

-- It will help ward off inflation and higher interest rates.

-- Inventory readjustments have dispelled a serious risk.

-- Both capital investment and exports will provide less lift during the rest of this year.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: FINAL TOUCHES ON THE GNP After computers have crunched the GNP numbers, these economists at Commerce's Bureau of Economic Analysis still have to evaluate them. Left to right: Robert Parker, Allan Young (director of the bureau), Gerald Donahoe, and Carol Carson. DESCRIPTION: Comparison of previously published and recently revised real GNP rate from 1985 through June 1988.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: STEPS TO SAFER GROUND Net outflow of goods from warehouses and stock shelves has removed a potentially troublesome inventory overhang. DESCRIPTION: Total accumulation of business inventory from 1986 through June 1988 with projection through 1989.