The nation's economic outlook has taken a visible -- and decidedly ominous -- turn for the worse.
Although analysts still aren't expecting a repeat of the disastrous 1974-75 recession, the odds that the economy will fall into a serous slump -- with a near-double-digit inflation rate instead of the preniously expected improvement -- have grown markedly in the past few weeks.
By most forecasts, a mild recession later this year or early in 1980 -- debated by private economists only a few months ago -- now seems virtually certain. The argument now is over whether the downturn will end up sharper and deeper.
And inflation, predicted as late as mid-January to slow to 7.5 percent or so from the 9 percent pace of 1978, now is thought likely to remain at 8.5 to 9 percent -- an underlying rate that is rapid enough to heighten the risks of recession.
The worsening stems from three factors:
The recent Iranian oil cutoff and the propect of additional major price increases throughout the petroleum exporters' cartel threatens to send inflation soaring even higher, making any downturn worse.
Domestic inflation already has worsened decidedly, with pervasive increases both in wholesale and retail prices in January that analysts say seem almost certain to continue and spread.
Despite some sporadic signs of slowing, the overall economy still is growing too rapidly for this stage of the business cycle -- a situation some analysts fear could lead to more serious overheating and bring on a sharper and deeper recession later.
By far the most serious of these in the view of most analysts is the continued overheating of the economy, which many analysts vies as the major reason inflation has accelerated so rapidly. Although a few recent figures have begun to show some signs of a modest tapering off from the fourth quarter's pace, the majority of key statistics still are far too heady.
The consensus both in and outside the administration is that the economy now has firmly entered the period of excess demand that analysts were debating about last autumn. The fear is that unless this excess demand abates soon, it will exacerbate inflation further and produce economic imbalances that will deepen the recession.
Otto Eckstein, former Johnson administration economic adviser and head of Data Resources Inc., frets that businesses already are "scrambling" to place new orders -- both to beat expected further price increases and to avert delays from backlogs such as they experienced in late 1978.
While careful not to overdraw the parallel, Eckstein notes that precisely that kind of activity -- in the face of a falloff in consumer spending and a slump in housing starts -- created the buildup of excess inventories that led to the 197475 recession.
"This isn't 1973," Eckstein concedes. "But there no doubt if this continues, it'll be very dangerous. What we're ecountering is a new -- and very frightening -- stage of the expansion. It's much more urgent now than it was previously to bring real demand growth down."
The new feeling of pessimism has spread to almost every major private economic forecaster. Lawrence Klein, who steadfastly predicted in mid-January there would be no significant downturn in 1979, now considers a recession "likely" -- with inflation looking substantially worse as well.
All that does not bode well for the Carter administration, which had hoped to get any recession "over with" before the 1980 presidential campaign, but which now seems more likely to be embroiled in the midst of it as the president begins his bid for a second term.
In his January budget package, President Carter proposed tightening economic policy further, combining a moderate reduction in the budget deficit with the new wage-price guidelines program he unveiled last October to combat inflation.
Now, however, it seems likely that the new burst of inflation will strain Carter's wage-price program to the breaking point, while the downturn -- if it comes -- will dash any hopes of holding down the budget deficit. And Carter may urn into further troubles with a declining dollar.
The irony, however, is that there may be little the White House can do to improve the situation. Key strategists have been discussing the problem at policy sessions, but so far have been unable to think of ways to get out of it.
Most of the broad policy steps Carter could take already are in place. The major untried options are still-higher interest rates -- which this time could crimp the economy -- or mandatory wage-price controls, which almost no one, including Carter, really wants.
If anything, the administration seems still vulnerable to compromises that make the situation worse. Carter recently backed another sugar-price increase to mollify Sen. Frank Church (D-Idaho) and other congressional figures, and is supporting new restrictions on textile imports.
At least some of the outlook depends on how the oil situation evolves. Analysts say resumption of stability now could head off any further damage, but there seems little solid evidence that this will come as painlessly as hoped. So far, the price increases announced last week seem likely to stick.
At the worst, a further crimp in oil supplies could seriously worsen any recession. And the administration's new plan to try to persuade all major industrial nations to cut back on consumption -- while designed primarily to help hold oil prices down -- is almost certain to dampen the economy here as well.
At best, analysts say if Iran resumes full production promptly and prices settle down after the current surge, the setback still will be enough to prevent any improvement from last year's inflation picture. At worst, it could guarantee double-digit inflation and cut output sharply.
The inflation speedup presents still another dilemma. Although some of the sharper-than-expected rise has stemmed from a surprise spurt in food prices, the figures show the price surge is spread throughout the economy. Analysts say unions will be hard put to keep wage boosts down if the increases persist.
Most perplexing, however, is the continued rapid pace of the economy. Although housing starts have begun to taper off from the fourth quarter's heady pace, economists say that's due mainly to the impact of state usury ceilings (which limit available mortgage money) rather than to any impact of higher interest rates.
At the same time, however, other statistics -- such as new orders for durable goods -- show the momentum in some cases actually may be accelerating. Far too many key industries already are straining against the limits of their production capacity. And money is still available: Corporate profits are high.
The combination of new problems also has left the Federal Reserve Board in a bind. With the oil problem now so severe, there's little the Fed can do to lower interest rares without risking another slide in the dollar. And if it has to tighten further, it could seriously worsen any receession.
For its part, the White House still is standing firmly behind its earlier predictions. While Carter's maverick anti-inflation chief, Alfred E. Kahn, has expressed some apprehension about the recent price surge, the administration's official line is that the January forecast holds.
But more and more economists are turning pessimistic. David L. Grove, a former IBM economist who now is a private consultant, notes that "unfortunately we're in a situation where all of the conceivable deviations point to higher inflation and a deeper recession."
And Brookings Institution economist George L. Perry, who was far more optimistic only a few weeks ago, concedes there are "very few slim reeds on which to hang your hopes" these days -- with few really workable options left if present plokcies fail to do the job.
"It's awfully hard to contemplate the question of what happens" if the economy turns sour in the face of the current restrictive fiscal and monetary policies," Perry says. "We could be looking at a very different world by the second half of this year."