Is the long-forecast 1979-80 recession finally on its way after all?
Back in Washington, economists and top policymakers seem pretty well persuaded that the downturn is beginning. Retail sales statistics have begun to sag. Housing is starting to decline. And auto sales are decidedly off.
But out across the country, businessmen and customers still are skeptical that any kind of slump is really in the cards, and many assert defiantly that the notion is just being manufactured by Washington.
A trip across six large and small U.S. cities in all major regions of the country show few outward signs that the recession is here and general optimism that the local economies involved somehow will escape.
In Rockford, business leaders are telling audiences here flatly that the major corporations in this machine-tool and agribusiness city "do not intend to participate in the recession."
In Dallas, city businessmen and economists say there are enough construction projects and new orders for area companies to support the local economy for months, even in the face of a recession.
And so it goes in San Jose, Calif.; Worcester, Mass.; Mason City, Ia.; and Columbus, Ga. In each of these cities, jobs are plentiful. Newspapers are bristling with want ads. And retail sales are still keeping pace.
In Worcester, skilled workers are in such short supply that one company has been inviting machinists to recruiting dinners. And in Rockford, the "active" file at the state's job-procurement service is the smallest in five years.
"We do not see any significant signs of a recession in a traditional sense," says Eugene C. Zorn, a Dallas bank economist who keeps tabs on the situation. "There's a tight labor market. Sales here are continuing high."
But there are some early developments that are beginning to shake the confidence of some more thoughtful analysts and that could be an indication the recession really is coming, whether Americans are ready or not.
For one thing, the recent actions of the Federal Reserve Board, both in tightening credit and raising interest rates to record levels, are having a quick and visible impact on housing and on business activity generally.
Although the availability of mortgage money still varies widely from region to region, lenders in many areas have tightened their requirements sharply and in some cases are refusing even to take applications.
At other, loans still are available, if borrowers are willing to lay down substantially larger down payments and accept sharply higher interest rates. Mortgage rates are at record levels in many cities.
As a result, Bobby Rowe, a Columbus real estate broker, says both listings and sales are off 15 percent this month and are likely to dip further if the tight-money situation continues.
And Wilson Lane, a neighboring homebuilder, says construction firms have put aside any plans for further new starts. "Everybody's finishing up what they have and waiting to see," he says.
The same situation prevails in most parts of the country. Jack Sutherland, a Rockford banker, says builders here "are holding back projects, waiting until spring and summer. They aren't canceling, just holding back," he says.
Nationally, housing starts plunged 8 percent in October. And building permits fell to a 1.55 million-unit annual rate last month, from a 1.775 million-units pace in September.
The dryup has set off a scramble in several areas to raise state-enacted usury ceilings, which are exacerbating the crunch in many states. In Califonia, S&Ls are mounting a major campaign to ease the limits.
There's also been a heavy swing to federally guaranteed Federal Housing Administration and Veterans' Administration mortgages. In some area, real estate brokers say that's all most would-be buyers can get anymore.
The Fed's action also has prompted businessmen to cut back on new orders for rebuilding inventories -- a factor that could ripple throughout the economy and eventually lead to some layoffs.
Latest federal figures show a sharp cutback in inventory-building in recent weeks, amounting to the largest in almost five years. And largely because of the high interest rates, suppliers are demanding quicker payment.
"The cost of money is making us more cautious," says Mike Torgerson, a Mason City furniture dealer. "we have no choice but to be more selective. You can't afford to be buying."
Jim Fite, a Dallas real estate broker, last week put off plans to open another office next year. "Our company's posture has changed a lot over the past 30 days," he says. "Now I'm going to hold my money and wait."
At the same time, the sales slump in the auto industry is beginning to have impact in other sectors of the economy, producing its own layoffs and cutbacks in related industries.
Finally, there is some evidence that consumers may be so deep in debt as a result of inflation that they're about ready to cut back on spending for most non-necessities. If that happens, the slump could be well on its way.
To be sure, little of that seems apparent in a cursory look at local economies these days.
For all the complaining about the economic pinch, consumers appear to be spending freely, both on basic necessities and luxury items.
In Dallas, for example, specialty dealer Jack Kincade reports that $900 videotape recorders still are "selling fast" and he "can't get enough cameras" to meet the demands of his customers.
And in Mason City, appliance store owner Larry Zilge says he sees no real reluctance by consumers to buy big-ticket tiems, despite some tightening of financing requirements.
But other analysts see some caution beginning to creep into consumers' buying outlook, with the prospect that the conservatism will be bolstered by the psychological impact of the Fed's actions.
Norbert Schwarz, a Rockford consultant, says the impact already may have begun with new coverage of the cutback in mortgage money: "Those front-page headlines really make it sink home to the middle-class," he says.
Indeed, the recent surge in mortgage interest rates already has discouraged many would-be homebuyers.
Bennie and Terry Howie, a young Memphis, Tenn., couple, have decided not to go ahead on a charming old downtown house they'd eyed for weeks because the new lending situation would have required a higher down payment.
"My colleagues say these interest rates just can't be maintained," Howie says. "Right no, I can't see six months ahead."
Charles and Karen Blomgren wanted a bigger home to replace their two bedroom house in Rockford, but canceled because of the higher carrying costs. "With interest rates like this," Blomgren says, "I'm not going to leave."
The boost is beginning to dampen sales in some other areas as well.Bill Lyons, a Mason City Toyota dealer, says the credit-tightening "has been felt here already. People are resisting that 15 percent paper."
The interest rate hike has put some businessmen in a serious pinch. Phenix City, Ala., developer John Thayer found himself stuck with an interest bill of $160,000 on a 48-unit apartment complex -- $60,000 more than he expected to pay.
Thayer says he "can't stop what we're doing -- we have to go on and complete it." He hopes to pass the extra cost on to buyers, but, he frets, "I'm not sure I can do it unless we're in a seller's market."
The high level of interest rates also is beginning to give some businessmen second thoughts about expanding: Says Jim Blanchard, a Columbus, Ga., banker: We're seeing a good number of delays in expansion plans across the board."
Confirms Walter Muther, director of Associated Industries of Massachusetts, a manufacturers' trade group: "People are operating on a week-to-week basis."
As often happens in such situations, small business are feeling the pinch more quickly. Notes Rockford consultant Schwarz: "A lot of larger customers are delaying payments to their suppliers. The little guy is getting hit."
Even farmers, who this year are enjoying a bumper crop, are turning more cautious. Gary Paulsen, a Mason City-area corn farmer, has canceled plans to purchase new equipment this year to supplement his new tractor and combine.
Still, such cutbacks remain only an early sign that analysts say could be reversed quickly if the Fed decides to ease up on the credit reins again anytime soon.
The prognosis of local businessmen and economists still is that business is good and likely to stay that way. And a quick survey of local conditions confirms that they're generally right.
In Rockford, for example, the economy still is being buoyed by the machine-tool and small manufacturing industries, and company spokesmen say they have enough new orders for another 12 to 18 months.
There's been some reduction in overtime recently, but layoffs are specialized and infrequent. Nick Deutsch, the state employment analyst here, proclaims the area is in "a healthy situation."
In San Jose, the still-booming semiconductor business is keeping overall income levels swelling and job-growth high, with no real sign of any slowdown in production. Businessmen say retail sales are holding firm.
Peter Giles, president of the Santa Clara County Manufacturing Group, says the "major constraint on job growth these days is housing -- we can't find enough to keep up with the work force." Others in the area agree.
Mason City, dependent largely on agribusiness, is enjoying a record grain and soybean crop and strong orders in related manufacturing industries. Says banker Hal Haver: "The only problem is in transporting the grain out of here."
Even in New England, which previously has been the hardest and earliest hit in a time of recession, the economy still is vigorous and the outlook locally is bright.
Worcester still is coasting along with a city-ful of new expansion and a backlog of new orders in a number of key industries. The jobless rate for Worcester is an unusually low 4.8 percent. Business leaders are optimistic.
In truth, analysts still aren't sure that we're heading into a significant recession. President Carter, who earlier had conceded formally that the economy was in a slump period, last week reversed himself.
And the National Bureau of Economic Research, the official arbiter of when a recession begins and ends, is sidestepping any firm delcaration on the question. At a meeting last month, it decided the evidence still was too thin.
But there still are uncertainties, related largely to the automobile slump and the continuing high interest rates. The cutbacks in auto production already have spurred layoffs, and some lumber mills have laid off workers as well.
Rockford consultant Schwarz concedes industries here have backlogged orders, but asks: "How firm will those backlogs be in a real slump?"
And Dallas economist Stan Kowalski notes that some of the buoyancy in his city's retail sales figures stem from overall population growth, and not from buying trends. He, too, frets the boom could turn around quickly.
What appears to be likely now is that the economy already is in a slowdown, but that its severity will depend mainly on how long the Fed maintains its tight-money policy -- a continuing uncertainty, even for top policymakers.
If the interest-rate crunch begins to bite visibly, the central bank could ease up on the reins in the next few weeks or so, and the recession, if any still could be mild. The forces of recession still aren't entrenched.
But the outcome could be far different if the Fed is forced to keep its credit restraints intact for a significantly longer period, as some analysts already are fearful it will.
Ironically, it is partly because consumers have sought to maintain their earlier spending habits -- through increased borrowing and two-income families -- that the Fed has had to take such harsh action.
In previous infaltion periods, consumers automatically slowed their spending when prices speeded up beyond the usual pace. But this time, consumers' response has been different -- and the Fed's has had to be, too.
Moreover, many economists believe inflation's burden will, if anything, get worse, at least over the short run. Energy prices are expected to continue to soar next year, and few still harbor expectations that prices will abate.
Meanwhile, the signs of a visible slump already have begun to appear: Retail sales are starting to fall off, auto sales are down sharply, and housing starts are plunging.
They may not believe it in Rockford, but the downturn may already be here.