To Americans basking in the first warmth of spring, it may seem that a lot has gone by the boards since the cheery days of last December. The nation has endured a severe cold spell, a record-long miners' strike and a new, unexpected burst of inflation. Now, two new worries have set in: Are we headed back toward double-digit inflation? And will there be a recession in 1979?
Admittedly, the economic outlook is decidedly less rosy than it was last Christmas. Economists who have gone back to their drawing boards after the first quarter's largely lackluster performance have revised their forecasts to show somewhat less growth - and significantly more inflation - for 1978. For 1979, their predictions are all over the lot.
But skittish as some of those forecasts are, virtually none of any standing includes either a return to double-digit inflation or a serious slump in the economy this year or next. The reason: Despite all the recent talk about soaring prices and slower growth, economists say the elements simply don't justify either of those big fears.
The forecasts indeed are less ebullient now. Back in December, most analysts were predicting the economy would grow by just below 5 percent this year, with inflation speeding up slightly from its previous 6 percent pace and unemployment edging downward to 6 percent by year-end. For 1979, the outlook was for a little less growth and continued inflation.
Now, after the dampening events of the January-through-April quarter, the forecasts have been shaved: Even the administration has reduced its prediction for real growth to 4 percent to 4 1/2 percent, and boosted its estimate for inflation to 7 percent for 1978 - about in line with those of private economists. (The only bright spot has been the unemployment rate, which is dropping faster than predicted.)
For 1979, the forecasts are more bearish, and ominous-sounding: Economists are predicting the economy will slow to a 3 percent to 4 percent growth rate -below the critical 4 percent level traditionally thought necessary to keep the unemployment rate from rising - and that inflation will continue in the 6.5 percent to 7 percent range. And analysts are split over whether the jobless rate will rise.
Moreover, to many economists, even this relatively weak performance depends on Congress enacting a major tax cut in time to affect consumer spending this winter. Although most onlookers believe the law makers almost certainly will push some sort of tax reduction through, both the size and timing of the cut are uncertain. Without a tax cut, the outlook could worsen.
This increased pessimism has had a curious effect on popular perceptions. Some sectors of the economy have seemed convinced that the nation is heading back toward double-digit inflation: The recent surge in consumer prices has set off fears of renewed acceleration, and few really seem to believe the government is serious about holding down the budget deficit.
At the same time, others fear the economy will slide into recession in 1979 - and send unemployment rising again - largely because of recent tightening by the Federal Reserve Board, which is raising interest rates to combat inflation. The Fed's action already is beginning to have an impact on the outlook for housing construction. And the long-sought investment boom isn't yet in sight.
But most economists tend to dismiss both those extremes for these reasons:
Despite last week's surge in wholesale prices, there's little to indicate inflation will move much higher than 7 percent any time soon. Much of the speedup in prices above what was forecast last December stemmed from temporary factors such as the spring spurt in food prices and the continued decline of the dollar. Industrial prices have speeded up only slightly.
But those problems may began to ease soon. Many analysts believe that the dollar already has reached the bottom of its decline, and farm prices have leveled off - raising the possibility that inflation soon may begin to slow. Although the recent speedup certainly isn't a welcome development, it is a long way from double-digit inflation. And that just is not in the cards.
"We're not as afraid about the outlook for inflation," says F. Gerard Adams, economist for the Philadelphia-based Wharton Economic Forecasting Associates firm. "Food prices have risen sharply in recent months, but they almost certainly will stabilize soon. If we can avert new measures that add to inflation, things shouldn't worsen all that much."
For all the tough talk about combatting inflation, observers say the Federal Reserve Board isn't about to tighten money and credit enough to risk bringing on a recession - at least not knowingly. Some onlookers suggest the Fed's new chairman, G. William Miller, has been overstating the case a bit to establish his credentials as an inflation- fighter.
Moreover, a substantial number of analysts believes the Fed's recent interest-raising sprce has been a good thing, needed to reassure financial investors and foreigners worried about the dollar. Even liberal economist concede the tightening so far hasn't been enough to damage the housing industry seriously. And Miller said repeatedly the Fed won't kill the recovery.
"I don't think what the Fed's done so far is going to have much real effect on the economy," says David Grove, former vice president and chief economist for IBM Corp. and now a private consultant. "The mood overseas was such that the Fed basically had to take some action. But I don't see anything that would escalate that trend."
Further, there seems to be little real danger that fiscal policy will turn restrictive. Although Congress now is diddling with the president's tax-cut package, most onlookers believe the law makers will pass some kind of tax cut for 1979 and later. And, in a $2 trillion economy, the ranges the law makers are talking about aren't likely to make much difference. Murray Weidenbaum, a former Nixon administration economist who is now at Washington University's Center for the Study of American Business, estimates that, if Congress delays the tax cut until next Jan. 1, it could weaken consumer spending just before Christmas buying time. But he concedes that the economy will grow more slowly in 1979 "with or without a tax cut."
Even if consumer spending does taper off more than expected, there islittle danger the economy will slide into a major slump because the structural imbalances necessary to bring a recession are not present. Recessions almost always have come from serious economis distortions. The 1974 slumps, for example, came when business cut back orders in the face of excess inventories.
But this year, the economy seems to be in fine shape, and it is expected to continue well-balanced even if its growth rate slows. "There just aren't the sort of structural imbalances you generally see before the economy begins to turn down," says Edgar Fiedler, economist for the Conference Board, the New York-based research organization. "Even inventories are doing well."
Moreover, because productivity has slumped so far, many economists believe that, even if output slows to below the usually crucial 4 percent pace, the jobless rate won't rise. With worker efficiency now rising so slowly, employers will not be as likely to fell their payrolls are bloated - and will not be as inclined to order layoffs - one government economist predicts.
That does not mean that coping with a speedup to a 7 percent inflation rate will not be painful, or that a slowdown will seem like unbounded prosperity. As continued voter protests over economic issue show, it is difficult enough for Americans to deal with a 6 percent price pace, let alone watch it accelerate. And it is more difficult to slow an inflation rate of 7 percent.
But that still is not economic disaster. And while the forecasts show it has been a long, long time to May from December, the changes should be put prespective. For the past four months, the nation has seemed to stumble from apprehensions of a major surge of inflation to fears of another postwar slump. The truth still seems to be somewhere in between.
Concludes George Perry, the Brookings Institution economist: "Our problems aren't going away, but they don't seem to be likely to get worse, either" - which isn't that bad a way to begin the post-1975 recovery's third full-fledged spring.