When the government publishes its latest quarterly report on the health of the economy in another 2 1/2 weeks, the statistics are expected to show something approaching a miniboom. Early estimates indicate the gross national product, or the economy's total output, may have grown by as much as a 9 percent annual rate last quarter. If so, it would be the fastest pace since autumn 1975.
But the new figures, while accurate enough for the second quarter's performance, may be shrouding a worrisome prospect. For all the ebullience in the April-June numbers, there's a growing possibility that the nation is headed for another recession. Economists say the major question is how deep - and how long - any such slump might go.
The outlook marks a decided shift from the forecasts of even a few months ago. As late as last March, most analysts still were pooh-poohing any notion of a possible recession, contending there just weren't enough signs to justify such fears. But now both liberals and conservatives are saying the risks are substantially greater. Even the optimists are predicting any growth will be well below par.
The big difference is heightened inflation, whose rapid re-emergence has prompted the Federal Reserve Board to tighten money and credit policies sharply. The resulting steep rise in interest rates already has begun to crimp the housing industry, and many economists are convinced the impact of the crunch will spread to other sectors of the economy as well.
Moreover, there is little the admininstration can do about it. Running another big deficit to counter the Fed would be difficult politically, and too much fiscal austerity could exacerbate the slump. And while the new White House anti-inflation program is winning the president high marks for trying, few expect to see inflation wind down from its new 7 percent level.
"I really get the feeling that I'm watching a Greek tragedy," laments Arthur Okun, a former member of the Council of Economic Advisers during the Johnson administration. "Nobody's doing anything wrong that you can point to. But there seems to be no way the participants are going to be able to avoid the dire outcome."
Admittedly, a recession in 1979 still isn't a flat certainty. The 39-month-old recovery still has considerable momentum, and there isn't the glut of inventories yet that plagued the economy in 1974. Housing only has begun to taper off, and auto sales still are robust. Analysts say there is still a chance the economy could muddle through without a slump.
But the specter is real enough that it already has begun to gnaw at the administration. A new internal forecast perpared for the top-level Economic Policy Group shows the growth rate for 1978 still likely to be a modern 3.8 to 4 percent. But the scenario for 1979 "is much more uncertain," one insider says euphemistically. "A recession certainly is possible."
And private economists are even more pessimistic. Otto Eckstein, president of Data Resources Inc., predicts there now is "a 35 to 45 percent probability" that a recession will come. And Murray Weidenbaum, the former Nixon administration economist, says "we're already heading toward the outer edges of a recession. The question is, will we fall in?"
The main source of analysts' new uneasiness is the recent tightening by the Feb. When inflation began to accelerate this past spring, the central bank began boosting interest rates to counter the speedup. Although the administration acceded to reigning infiscal policy, the Feb has shown no signs of a let-up. And few analysts offer much hope it will ease in the future.
In the past eight weeks, the central bank has boosted its key federal funds rate - the interest charged on loans to member banks - by one full percentage point, pushing other interest rates up even more sharply and drying up mortgage money. The most recent such move occurred 1 1/2 weeks ago. And insiders say it is unlikely the board will reverse itself anytime soon.
Most economists aren't blaming the Fed. As the nations's primary inflation fighters, the board members "just don't have any choice," Okun concedes. "but their actions are creating a very high risk of recession." Eckstein agrees. "It's the classic credit cycle," he says. "If things continue as they are now, there's no question we'll have a recession."
And the administration, too, is getting edgy about the Fed's continuing tightening. Although the White House agreed earlier to an informal "accord" with Miller - cutting back its tax-reduction and spending plans in hopes of getting the Fed to stop raising interest rates - the central bank has shown no signs of fulllilling its end of the bargain.
The week before last, when the Fed raised the federal funds rate yet again, top policymakers came within inches of attacking the move publicly. And Miller told the congressional Joint Economic Committee Thursday that while it's true the central bank may be risking recession, it still was "very concerned" about inflation.
Moreover, despite an easing in farm and food prices since the start-of-the-year surge, few economists expect inflation to slow much from its latest 7 percent mrk - at least over the year as a whole. While cattle prices have eased some in recent weeks, there still is enough momentum in wage increases and wholesale industrial prices to keep the spiral going through most of 1979.
Friday's disappointing report on consumer prices essentially reinforced that view. Although analysts still expect some further easing in food prices, there are added setbacks ahead for 1979: more Social Security tax increases, a second minimum-wage hike, and continuing high wage settlements. Although inflation still may slow toward 6 percent by December, it could be back to 7 in 1979.
To its credit, the administration finally has shown some signs it is taking inflation seriously - in part to persuade the Fed to stop tightening monetary policy and in part because top policy makers finally have recognized the price surge as a problem. In recent weeks, President Carter has pared the size of his tax cut, ordered a new spending crackdown, and begun heavy jawboning.
But although the shift may be encouraging, few analysts expect the program to yield much in genuine results. The big reason: The administration still has not had even mild success in attacking the real nub of the inflation problem convincing labor to moderate its wage increases. Indeed, the short-run outlook seems to point to disastrous settlements involving railroad workers.
To many anaysts, the biggest outpouring from the anti-inflation program so far has been flim-flan. Anti-inflation with near-daily announcements of this or that firm's announcement of a limit on salaries for a handful of executives. And officials have achieved spotty results in bargaining for price holddowns.
The White House has been somewhat more successful in prodding government agencies to consider the inflation issue in their policy moves and regulations, but even this has amounted only to a start. Concedes one top policy maker stoically: "You aren't going to get people to cooperate until they get sight of the gallows."
Carter has taken some firm steps to reduce the budget deficit: To begin with, he has pared his tax-cut proposal to $20 billion from the $25 billion level he proposed earlier. And he has ordered a spending crackdown for fiscal 1979 and 1980. But as one analysts put it, the talk about fiscal austerity still is talk. Carter has yet to veto a bill for exceeding budget goals.
Moreover, even when the administration proposes new economic measures these days, it seems almost certain to run into opposition from Congress. Carter's hint at the possibility of imposing oil-import fees was blocked by the Senate last week, and his efforts to beat back a costly cut in capital gains taxes have run into heavy congressional crossfire.
The question is, if the economy goes into a recession, how deep will it be and how long will it last? After the second quarter's likely 9 percent real growth, most analysts are expecting output to ease to 4 to 5 per cent in the current quarter, then slow by year end to less than 3 per cent - well below the pace needed to keep the unemployment rate from rising.
After that, it's anyone's guess. While some analysts are predicting only two or three quarters of actual decline in output, others fret the slump could last longer - particularly if business investment slows. Alan Greenspan, former president Ford's economic adviser, envisions a "saucer-shaped" recession - long, but shallow - with joblessness edging up to 6.3 percent.
Eckstein and others fret the jobless rate could rise more rapidly, however - in part because hiring has been so frenetic so far this year. Business has taken on 4 million new workers in the past 12 months, he notes - a work force it will keep on only if sales remain strong. If a slump comes, firms could lay off "a million jobs or so in a matter of months," Eckstein warns.
The difficulty, both liberal and conservative analysts seem to agree, is that there's little the administration can do now either to help avert a new slump or to reverse one if it comes. Economists warn that any new move to boost spending or broaden the tax cut would be difficult politically, and even could set the Fed to harsher monetary tightening - a move bound to make the recession worse.
On the other hand, there's also an outside chance the slump could be exacerbated by the absence of a tax cut early in 1979 - if Congress proceeds as is on Carter's tax package. The bill, already pared to $15 billion in the House, still is bogged down in a fight over capital gains tax cuts. If Carter vetoes it, as he's threatened, the tax cut could go down the tubes entirely.
From a strictly cynical view, things could be worse for the administration. If the slump comes early in 1979, the economy presumably will be back in a recovery before the 1980 presidential election - in time to enable Carter to ride the upturn into the spring and summer campaign. "If he had to have a recession," one analysts says, "he couldn't have picked a better time."
More realistically, however, the slump would prove a political headache for the administration in between, heightening pressure on the budget deficit, and possibily prodding policy makers into rasher actions. Greenspan argues the administration simply should use the time to make changes that will improve the economy in the longer run. But that's easier said than done.
In the meantime, the odds keep increasing that, after the longest recovery in postwar history, the economy is on the brink of a possible recession. As Okun puts it, "nobody quite knows where the edge of the cliff is." But the next few week's robust statistics shouldn't be taken as a sign that the danger zone is past.