The consensus view of analysts concerning the outlook for the economy and interest rates is that the low level of interest rates, coupled with a lower dollar in the foreign-exchange market and a very accommodative monetary policy, will lead very soon to a surge in the economy. This upturn in the business cycle eventually will cause interest rates to rise, probably by year end.

A contrary position has been taken by John Paulus, the chief economist at Morgan Stanley. Paulus has just lowered his estimate of real GNP growth for the second half of 1986 to 2.5 percent (the consensus view is 4 to 5 percent) and just under 3 percent for the first half of 1987 (the consensus view is 4 percent plus). The basis for the disagreement with the consensus view is the belief that, if interest rates do not fall by another 75 to 100 basis points, the U.S. economy will grow only at a lackluster, below-trend pace.

To back up his position, Paulus notes the peculiar economic expansion we have had during the past four years. In 1983 and through the first half of 1984, GNP, which was fueled by an expansive fiscal policy, exhibited real growth averaging 7 percent. However, since mid-1984, real GNP has grown at a 2 percent average rate, which is significantly below the historical trend.

The cause for this weakness was the strong U.S. dollar, which devastated the goods-producing sectors of our economy (manufacturing, mining and agriculture). Since mid-1984, the capacity utilization of the manufacturing sector has fallen to 79 percent and profits in the manufacturing sector have declined 25 percent over the same period. A slower growth in income, plus a record level of debt incurred by consumers, will force consumers to retrench, which will negate much of the anticipated impetus expected to revitalize the economy.

Paulus feels that the three reasons cited by the consensus for expecting a resurgence in growth "despite lousy fundamentals" -- the already large decline in interest rates, the increase in the money supply and the stock market boom -- can all be traced to a decline in inflationary expectations. The stimulatory effects of these factors, Paulus reasons, have been "significantly exaggerated." He points out that, in fact, the real interest rate (nominal rate minus the expected inflation rate) has increased, even though the nominal rate has declined. Similarly, he believes that the sharp rise in monetary growth and the stock market boom will provide substantially less stimulus to spending than is commonly believed.

Paulus feels that the economy will not improve until the "trade balance narrows appreciably." To date, the narrowing has been painfully slow, mainly because the dollar has depreciated only slightly against the dollar-bloc nations (Canada, Latin America and most Pacific Basin nations), with which more than 50 percent of our trade is carried out. The bottom line for Paulus is that interest rates should decline 100 basis points over the next three months because of the inherent weakness in the economy.

As a bonus to this expected decline, Paulus looks to the passage of the tax reform plan to reduce interest rates by an additional 100 basis points next year, "because the plan substantially increases the cost of borrowing and a return to saving."

The Treasury will auction 2-year notes in minimums of $5,000 on Wednesday. They should return 7.15 percent.