The economy has shown surprising strength in the last two months, and at least one group of economic forecasters has climbed out onto a limb to say the recession hit bottom in July.
Donald Ratajczak, director of the Economic Forecasting Project at Georgia State University, said the recovery began in August and should continue without interruption.
A number of other economists are revising upward their estimates of how well the economy will do in the current quarter, but most of them, like Alan Greenspan of Townsend-Greenspan & Co., expect a renewed decline before the year is out.
Greenspan expects a drop in the output of goods and services in the third quarter, after adjustment for inflation, at an annual rate of 2 percent or less following the near-record 9 percent rate of decline in the second quarter.
But Greenspan believes some of the summer strength the economy has displayed is a transitory responce to the ending of the consumer credit controls. "The recession is not over, and it is not expected to reach its trough before the first quarter of 1981," Greenspan told his clients recently.
"Much of the strength in July came from weather-induced purchases in the consumer sector and the rebound in new-car sales," he explained. "On both of these counts, renewed weakness appears to have developed in August."
Ratajczak reached his conclusion on the basis of detailed data covering hours worked and industrial production for July, and of recent developments in financial markets. He said output, as indicated by the index of hours worked and for industrial production, was depressed artificially in July by strikes in construction and mining.
An end to the construction strikes should have provided a bit of a boost in August. Certainly pressure in credit markets has intensifed, suggesting " a sharp increase has occurred in the demand for money. Increases in economic activity and/or accelerating inflation must account for some of this increasing money demand," Ratajczak maintained.
Another economist revising his third-quarter estimates upward is Michael Evans of Evans Economics, a Washington firm. "We now expect real GNP to decline at only a 1.6 percent rate this quarter, and even this surprisingly modest reduction does not include any major improvements in consumption for the rest of the quarter . . . ," Evans said.
Although no forecaster thinks the economy still is dropping at anything like its second-quarter pace, some are not as sanquine as Greenspan or Evans, to say nothing of Ratajczak.
Lawrence Chimerine of Chase Econometrics noted late last month, "Our forecast of continued recession for several more months, followed by a relatively slow recovery during 1981 and 1982, is unchanged from prior months."
And he added that despite the sharp increases in the index of leading indicators " and one or two other positive monthly statistics, the overall evidence not only supports this outlook but it also suggests that the risks are on the downside."
Late last week the Commerce Department reported that preliminary figures show the index of leading indicators also rose 4.6 percent in July, the largest monthly increase on record.
Chimerine's latest forecast predicts a 5.5 percent drop in real GNP in the third quarter followed by a further 0.4 percent decline in the fourth.
Greenspan said the economy simply is "giving off conflicting signals as to its future course" but that overall "the evidence of weakness is growing."
He said the recent jump in mortgage interest rates could mean a reversal of the big gains in new housing starts that occurred in June and July. At the same time, and in direct contradiction to Ratajczak's expectation, industrial production is falling sharply again as many industries slow their output as they and their customers reduce inventories.
"It is too early to be certain which way these conflicting signs will eventually point," Greenspan said. "But we believe we have only seen a recovery from the shock of credit controls, not the beginning of a sustained economic expansion."