In its first such action, the Carter administration has sent invitations to a group of outside economists to meet with the President's economic advisers two weeks from now amid White House fears the nation may be headed into an election-year recession.
The meeting will occur as Carter's advisers are wrestling with the question of wheather their public mid-year forecast should show a recession, and if so, what they should propose, if anything to do about it.
More and more private economists are convinced the economy is already in a recession.
"There is no doubt that we are in a recession," Walter Heller, a former chairman of the Council of Economic Advisers told a breakfast meeting with reporters yesterday. "If there is a summer bounce back, that would be the aberration, not the decline in the second quarter."
"There could be a plus-quarter," he continued, "but that would be followed by another negative quarter."
The clincher to Heller, a professor at the University of Minnesota, who does regular forecasts in conjunction with George Perry of the Brookings Institution, was the "soggy retail sales of the last two months."
Consumer buying in April and May was 4 percent below the level of the fourth quarter of last year, once an adjustment for inflation was made, Heller declared.
Top administration economists also point to that sales decline in real terms as bad news for the economy, but not unexpected news.
"Meat and energy price increases have been kicking the daylights out of consumer purchasing power," said one.
But he also noted that "we do not find yet a crumbling to business investment intentions" and that could mean that any recession would not be deep.
The administration had all along wanted an economy that was growing very slowly to help cool off inflationary pressures. What they have got is that sort of economy, plus what the official called "the OPEC surprise."
The key to just how much the economy turns down will be to what extent inflation moderates. If it does not slow down soon, it could so curtail consumers' real buying power that sagging markets could lead producers to trim those still-firm investment plans.
But even though the "OPEC surprise" has occurred, Heller said, governments of industrial nations around the world are reacting just as they did in 1974 by boosting interest rates. The British, French, Germans and Japanese all have done this, he said.
The oil price increases act just like a $20 billion excise tax on the U.S. economy, Heller said, and further OPEC price boosts would add to that.
The White House problem is a difficult one. With a recession in the forecast, it would be extremely unlikely that enough revenues would be there to allow Carter to continue to aim at a balanced budget in fiscal 1981, which begins a year from this October.
The Congressional Budget Office, in one version of its still-unpublished mid-year forecast, estimated recently that higher inflation and a more serious recession than it had earlier expected would increase federal spending in fiscal 1980. That tentative forecast concluded that spending would be higher at least $80 billion than the $532 billion assumed in the first budget resolution adopted by Congress last month.
About $3 billion of the added outlays would go for higher unemployment benefits because of the recession.
The recession will also reduce expected revenues, though higher inflation will push them in the other direction. But it now seems extremely unlikely that the 1980 deficit could be small enough that balancing the budget in 1981 is a reasonable policy, in the opinion of many private economists.
Beyond not insisting on a balanced budget for 1981 administration officials are pondering whether other action might be needed in 1980, such as a tax cut.
"Tax cut talk at this stage is premature," maintains one administration economist. There are just too many uncertainties in the outlook for anyone to call for such a policy shift now.
Part of the White House problem is, as Heller said, that recession is "an emotional, a political word" every bit as much as it is an economic concept. The important thing, he added, is, "Okay, so we are in it. How long and how deep will it be?"
Heller thinks not too deep, but serious enough to push unemployment to between 7 1/2 and 8 percent this time next year. He expects the recovery to begin in the first half of 1980 and to be a very gradual one.
Heller favors a tax cut for 1980, but only a modest one - $20 billion or so. "There has got to be a tax cut in 1980, and the President ought to be preparing the country for that. He should be rethinking his policy and be prepared to back off his no tax cut pledge."