University of Michigan economist Thomas F. Juster said yesterday that consumers will soon stop the buying binge they have been on since 1975, triggering a sharp slowdown in economic growth for an actual recession.
But most other forecasters at an economic outlook panel here were more sanguine on the prospects for the United States avoiding a recession next year.
Herman Liebling, for years the Treasury Department's top forecaster and now a professor at Lafayette, said that investment spending by businesses is proceeding much faster than most economists anticipate. Strong business spending on plants and equipment should generate jobs and spending that will take up the slack from the consumer.
Consumer spending has been the driving force behind most of the three-year-old recovery from the severe recession of 1974 adn 1975.
Richard Karfunkle, of Econoviews International, a Pennsylvania consulting firm, predicted the economy, and consumer spending in particular, will slow more in the final six months of the year than most economists and the Carter administration predict.
"But it will be the pause that refreshes, not the pause that recesses," Karfunkle said.
As consumers work off some of the debt burden they have taken on in recent years and receive the benefits of a tax cut eary last year, they can be expected to take off on another spending binge by next Spring. Karfunkle's conclusion is that "no recession appears on the economic horizon in the 1978-80 span."
Juster, who is director of the Institute for Social Research at the University of Michigan, took an opposite view. He said that consumers, in working out the high debt burden they ahve accumulated, will stop spending, in part because of lack of confidence in the future.
Consumer installment loans increased by $20 billion in 1976, by $30 billion in 1977 and have been rising at an annual rate of $40 billion so far this year, Juster said. In addition, consumers took advantage of sharp increases in the equity in their homes by refinancing.
These actions "created purchasing power," Juster told a panel at the annual meeting of the American Statistical Assocaition here. "But the loans have to be paid back." Juster said his monthly surveys of consumer sentiment show that the average American is reasonably confident about current conditions, but fearful of the future, in large part because of continuing high inflation.
Furthermore, Juster said, his surveys show that consumers have little confidence in the ability of government monetary and fiscal policies to cope with inflation and other economic difficulty.
As a result, consumers think it is better to buy now before prices go up, he said.
Both their fears of inflation and their lack of faith in govenment are "signals of weakness," the Michigan economist maintains. "The economy will crumble when the 'buy in advance' sentiment disappears."
Thomas Synott, an economist at New York's U.S. Trust Co., said, "We have not yet seen the peak (in the Federal Reserve Board's) credit stringencies." He said he expects interest rates to rise almost another percentage point in the coming months and that the prime rate will be in the 9.5 percent to 10 percent range by the end of the year or early next year.
But Synott said he is assuming that the rate of inflation slows from the 10 percent pace in the first half of the year to a 7 to 8 percent rate during the last six months of 1978.
If inflation stays at a 9 to 10 percent rate, Synott said, the senario is more gloomy, because the Federal Reserve will find itself forced to take even tigher actions, driving up interest rates more.
More economists, including those who work for the Carter administration, foresee a slowing of inflation in the last half of the year in large part because of a moderation of food price rises.