Evidence that recession is a reality and that expensive credit is beginning to force some changes in business decisions came late Friday, when the Washington-based Garfinckel, Brooks Brothers, Miller & Rhoades retail conglomerate called off a substantial acquisition.

Only six weeks ago, the Garfinckel corporation signed a letter of intent to buy the seven-store Frost Bros. chain in Texas from Manhattan Industries for $27.2 million.

But Garfinckel Chairman David R. Waters said on Friday that his management decided it "was not in the corporation's best interest to acquire this business in the light of current economic conditions."

In effect, Garfinckel appears to be putting on the back burner, for now, its often-stated ambition to grow by acquisitions of specialty and fashion-oriented retail operations from coast to coast. With annual sales now exceeding $420 million, Waters had set a goal of $800 million in sales by 1983.

Through 1979, at least, U.S. retail volume remained relatively strong (except for new car sales) and helped to mask deeper economic problems. But tighter controls over credit purchases now are expected to cut into sales of all but necessities.

Washington retailers, in particular, are expected to suffer somewhat more in 1980 from a peculiar election-year virus. According to one theory, normally strong D.C. area sales become sluggist during presidential election campaigns, when it is possible or definite that there will be a change in the administration. Persons with government jobs today might not have them in January and are extremely cautious about buying.

However, a strong recovery in sales usually follows, whatever the November results. If the incumbent is coming back, his appointees have less fear about job stability. And if a new resident is moving into 1500 Pennsylvania Avenue NW, there is a boom in sales to persons moving here (plus a housing crunch and higher house prices since many people never leave Washington once their government careers end).

Whatever the truth of election-year worries, investors appear to be convinced that retailers based in the Washington region face a tough year. Stock prices for many of the companies are close to 52-week lows. Garfinckel was unchanged on the New York Stock Exchange last week at $14.50, just $1 above its low for the year and down from a high of $26.50.

Woodward & Lothrop, a department store firm traded over-the-counter, is at a yearly low of $19 a share and down from a high point of $28. Woodies' stock has declined 15.6 percent in the last four weeks and 20.8 percent since the start of the year, in the wake of sluggish earnings during recent quarters. t

Among other regional retail firms, Best Products declined 10.7 percent last week and 28.1 percent since the start of the year and now stands at $16.625 a share compared with a high of $29.125; Drug Fair Inc. is at $6.625, down 32 percent for the year after deciding to get out of the retail clothing business (it had Wrangler Wranch stores) and amidst industry rumors that its Scoops ice cream parlors and Soup r' Scoops restaurants are about to be dropped. And Peoples Drug Stores is down 9.6 percent for the year at $11.75, a relatively strong showing that reflects earnings growth.

ELSEWHERE LAST WEEK: Stocks generally took a beating, with the Dow Jones average of 30 industrial blue chips off 28.45 to 763.10, negating a 13.90-point gain over the previous two weeks. The Big Board composite index fell 1.79 to 57.21 and Johnston, Lemon's index of 30 Washington blue chips resumed its downward trend of 1980 by falling to 100.167 from 100.599. Stocks are lacking in favor because the recession is expected to reduce corporate profitability and hold down dividends, which have been increasing steadily for many firms in recent years.

At the same time, anticipation of lower interest rates led to continued strength in bonds. When some banks cut their prime lending rate, bonds staged the biggest one-day rally in history on Wednesday. At week's end, the prime rate was 19.50-19.75 percent at some money center banks and Washington institutions are expected to reduce their prime rates in the coming week.

The Federal Reserve Board's policymaking Open Market Committee is scheduled to meet on Tuesday and anaylsts at Commerical Credit Co. in Baltimore said committee members likely will discuss recession indicators and the impact on dollar trading abroad.

Commodity futures prices generally were soft last week with precious metals lower as recession fears dominated investor decisions.