Most Washington area business executives, trade association officers and private economists think a recession is inevitable and already may have started.
But they don't expect the economic decline to approach the magitude of the 1974-1975 recession and don't expect the Washington metropolitan area to suffer a substantial setback as it did earlier in the decade.
The major worry is the state of the country as a whole. Potomac Electric Power Co. Chairman W. Reid Thompson said he sees a "crisis of the spirit" because of the absence of strong national leadership on energy problems and gasoline shortages.
Economist Michael K. Evans of Evans Economics Inc. is among those who think the recession has started. He predicted a decline in gross national product because of weak consumer sales, a small increase in durable-equipment purchases and declining housing starts. Unemployment will rise, and the federal government will respond with greater budget deficits, he forecast last week.
A consensus of Washington bankers and business leaders who attended the recent D.C. Bankers Association convention in West Virginia is that the economic malaise is likely to continue well into next year absent some dramatic shift in Carter administration policies. The anti-inflation program is described as dead; the energy situation, as confusing.
President Carter "declared the moral equivalent of war two years ago and then locked up the arsenal," Thompson said of the energy crisis.
The principal factor cited by local business leaders in concluding that this recession will be "softer" than the one that took place after the Arab oil embargo is that 1980 is a presidental election year.
t"The administration, if it anticipates any hope of remaining in power after 1980, will have to make some dramatic moves in order to stabilize the economy," said Peoples Drug Stores Chairman Sheldon Fantle in an outlook survey conducted recently by Ehrlich-Manes & Associates, a Washington advertising agency.
"I firmly believe that we can anticipate [changes], and for that reason [I] am more optimistic about the fact that any recession that may occur will be short-lived, and that the possibility of a full-blown depression is fortunately not likely," Fantle continued.
However, the retailer cautioned that his optimism is contingent "on the American public retaining its confidence in the future and not becoming panicky at the slightest indication that all may not be well in the world."
Similarly, Financial General Bankshares Inc. President J. William Middendorf II said an economic pause can be healthy - cooling inflationary trends. "With an election year looming, however, politics is likely to overwhelm economic logic, possibly preventing a full-scale recession but virtually guaranteeing higher budget deficits and higher inflation," Middendorf stated.
Riggs National Bank Chairman Vincent Burke Jr. noted last week that his institution had joined money center banks in reducing its prime rate for large corporate borrowers to 11 1/2 percent from 11 3/4 percent, indicating "some slackening of loan demand" from the business and commercial sector.
But consumer loan demand continues to be strong in all categories except for automobiles, with "no indication" of a slowdown here, Burke added.
At the Baltimore-based investment firm of T. Rowe Price Associates, economist Ben Laden argued that, despite Carter's assessment that a tax cut is not possible until there is a balanced budget, current economic trends make a tax cut increasingly likely during next year's election campaign.
Economist Evans also is looking ahead to a tax cut in 1980. Two likely candidates for tax-cutters are a reduction in depreciation lives to 10 years for all structures and to 5 years for all equipment, and some partial tax exemption for interest and dividend income - both targeted at improving savings, investment and productivity.
These types of actions would produce stable recovery from recession and reduced levels of inflation while "old-style" tax cuts designed merely to boost consumption would do nothing to solve fundamental problems, he argued.
Laden is forecasting a mild recession during the balance of 1979 followed by a resumption of economic expansion early next year. But unemployment is expected to jump to about 7 percent, and that will force a White House reassessment of policies, Laden stated.
Because of high inflation, increased Social Security payments and income taxes and lower real consumer income, proposals to cut taxes will be "popular" with Congress, he predicted. Evans predicted that unemployment may not peak until it reaches 8 percent or more, with the recession lasting until next spring.
Pressures on spendable income already have led to a slowdown in consumer purchases here and across the country. Auto sales are slumping substantially, partially because of the gasoline shortages. In the first quarter of the year, areawide retail sales were up just 8 percent, and most of the gain came in such necessities as food. General merchandise sales (department stores, for example) were up only 6 percent from the same period in 1978, while consumer prices overall were up 10 percent, indicating a slowdown in real sales.
However, Pohanka Oldsmobile President Jack Pohanka told D.C. Bankers that he thinks the auto industry will help pull the country through a mild recession because more customers will want to buy fuel-efficient cars - and this trend largely will bring in enough new sales to help offset decisions not to buy larger vehicles.
William C. Doenges, president of the National Automobile Dealers Association, agreed. NADA is forecasting car sales this year of 10.5 million units - off from 11.3 million last year but 3 1/2 percent higher than the average of 10.1 million annually for the last six years.
The "most significant" factor in auto sales declines "is the public's perceived lack of national leadership" on interest rates, continuing inflation and gasoline shortages, Doenges said in the Ehrlich-Manes survey.
George Olmsted, chairman of the merchant banking company, International Bank of Washington, prefers planning to forecasting the economic outlook. "When one man's decision can deny us half of the petroleum essential to our economy, when one man whose finger is on the nuclear trigger can destroy or irreparably damage our civilization, long-range forecasting can well be a waste of time," Olmsted said.
He urged the nation to chart its course by compass rather than crystal ball, and concluded that increased international trading and investment are the solution to be sought.
Among comments from other persons surveyed:
Arthur Arundel, chairman od Pepcom Industries (soft drink bottlers): "In my estimation, intense media communication of dire predictions of a 1979 recession have effectively scared us clean out of a "big jolt".... It is not recession, but oil to fuel our businesses and delivery vehicles which will be the real problem of the last part of this year and well into 1980. Along the way, my hunch is that we are going to find that Jimmy Carter has been taking the rap for problems beyond the president's control..."
George Ferris, president of the investment firm, Ferris & Co.: "Corporations which pay whatever interest is necessary to raise working capital during periods of heavy activity and high profit will have less demand for funds as business activity slackens and, consequently, a decline in interest rates can be anticipated in the not-too-distant future...as interest rates drop, there will be a major influx from the large pool of institutional cash into quality stocks..."