The following is a transcribed excerpt from 'FOX News Sunday,' August 8, 2004:

BRIT HUME, FOX NEWS: The unemployment figures for July show the jobless rate at 5.5 percent. That's the lowest since October of 2001. But America's payrolls rose only 32,000 in July — much, much lower than expected.

So is the economy stuck in a summer slump? Joining us from New Bedford, Massachusetts, to discuss the issue is Allen Sinai, chief global economist and president of Decision Economics, Inc.

Good morning to you, sir. Thanks for being with us.


HUME: Now, this job number, 32,000, that's from the Labor Department's payroll survey, a very large sample of businesses, to get an idea of this. There's also what's called the household survey, and the numbers are usually different between those two surveys. This time they're phenomenally different.

The payroll survey, which is much more heavily relied on, I guess, 32,000. And you've got almost 20 times that many, the estimated number of jobs created, in the household survey.

What about this discrepancy? What do you make of it?

SINAI: It's not uncommon, early on in expansions, to have the differences. Over time they will tend to converge.

But I think what's happening is American businesses really don't want to hire people and create a lot of jobs. It's very expensive when you roll in everything: health-care costs, pension benefits, the administrative costs.

And so, you see a jobs count, which counts jobs, not people working but jobs, that's very low and, on average, much less than in other business cycle upturns, so that individuals are not easily finding a second, third, sometimes fourth job.

The household survey counts the number of people working, and in it are a lot of soul proprietors, individuals who hang out there, shingle for consulting. And those numbers are robust. Indeed, on that measure, almost a couple million people have found work in the last few years.

So we have this huge discrepancy, but I think it's understandable and explainable.

HUME: Let me ask about the possible political implications of this. The payroll survey indicates, I guess, as you said, jobs created; and household survey, people working.

Which one, in your view, is more likely to be an indicator of political sentiment about the economy? Is it the payroll number or the household survey determining how people kind of feel about things?

SINAI: You know, I think it's going to be somebody has a job, maybe doesn't have that second job or third job. Somebody has a job, maybe is not earning as much as they were earning and may have been out of work for a while. But if an individual has a job, I think, for political calculations, that would be more important than the number of jobs.

The headline number that we all watch, because it gives a better take on the overall pace of the economy, is the non-firm payroll, what business is doing. In terms of how people feel, I think it's more, do I have a job, do I not have a job? The next question is, how secure am I? And then, how much money am I earning? Am I earning enough to cover my expenses?

HUME: So you need some composite to figure that out. Obviously that seems difficult.

Let me ask you what you think about the economy. Alan Greenspan spoke of a soft period in June, I guess. Is it likely, in your judgment, that we're in a soft patch here that will firm up? Or is it more likely that we may be now headed — the economy may now be heading down and another recession might loom?

SINAI: For the year going ahead, we're going to grow more slowly than we did over the past year, when we had all that fiscal stimulus hit and help last year and early this year...

HUME: You're talking about fiscal stimulus. You're talking about added spending and the tax cuts? Is that what you're talking about?

SINAI: And the tax cuts that really were concentrated in 2003 and the first half of 2004.

We're going to grow more slowly. So this soft batch I think will fade and we will firm up. But we're not going to have the robust growth we had the past year.

HUME: Well...

SINAI: But still the economy should be — after we get through a slower period, we will, I think, pick up again.

Business generally is solid and good in the U.S. and around the world. And it would take a lot of trouble — not to say there aren't risks to this view, but it would take a lot of trouble to knock out this expansion at this point.

HUME: So your view is that the economy will grow. Let's see, it grew, what, 3 percent in the second quarter, which represented a tumble from the first, which was I guess 4 or a little above.

What would be your sense — obviously no one can be held to a thing like this, but do you think we're headed for another 3 percent quarter, or what?

SINAI: Well, yes, the third quarter could be even less than 3 percent growth.

So, it looks like, when you look at real GDP growth, that we are fading. Then we'll probably come back up again. On average, over the next year, we are thinking we'll grow about 3 percent.

That is a view that is softer than the so-called consensus view. Our own notion is, we're going to grow more slowly in the year ahead. But it isn't going to be a recession.

We are running into a real problem and a real risk here from higher oil and energy costs, which are hurting discretionary income and consumer spending and hurting business costs. And that we have to watch. That's worrisome, in terms of the economy.

HUME: Do you think that's the principal problem here that has caused this slackening in growth? Is it energy prices, or are there more factors as well?

SINAI: I think that's the principal source of the slowing economy. And also, we are observing higher inflation. And because those are showing up together, along with record-high oil and energy costs, it's easy to put two and two together. The higher oil and energy prices and costs are really hurting growth and raising inflation at the same time. That's a worrisome risk and development that we'll have to watch.

I think, other than that — and we are watching that — the economy should, after this slowing period, pick up again, and we should be fine.

HUME: Now, Alan Greenspan and his friends at the Fed have raised interest rates a quarter percent. They're still very low. He's got another decision to make soon, and it seems widely expected that he'll raise rates again.

Now, is this a combination of sort of a — could we be getting into kind of a vicious cycle here, in which the economy is slowing because of higher energy costs, which feed inflation, which require the Fed then to raise the interest rates, which raise borrowing costs, and on and on?

SINAI: You've got it right on, 100 percent. That's the worry, just exactly as you've described it.

The Federal Reserve is, we think, going to raise the federal funds rate this Tuesday, because our interest rates have been super- low. They were set low to make sure the economy came back. Now the economy has come back, and they have to get rates to a more normal level.

The hit to inflation, push-up to inflation, from higher oil and energy costs creates a problem for them. They have to keep inflation down. But at the same time, higher oil and energy prices and costs slow growth down. So what do they do?

This hike in rates this Tuesday may be the last for a while, if the numbers on the economy continue to look on the soft side.

HUME: All right. Allen Sinai, very good of you to come in. Thanks very much.