The long-forecast 1980 recession appears to be over, possibly the most short-lived in United States history.
Now, for the bad news:
The coming recovery is apt to be sluggish. Inflation will remain high for the rest of this year and in 1981. And prognosticators says there's a better-than-usual chance that the economy could stall again next year.
The elements behind this pessimistic forecast are the same that brought the recession to an end sooner than most economists expected:
For all the talk about the severity of the slide, the slump never spread much beyond autos, construction and steel. Although there were some "ripple" effects in related industries, the bulk of the economy remained relatively unscathed.
Although consumers cut back substantially from their spending spree of 1979, their retrenchment wasn't nearly as severe as in previous recessions. The credit controls imposed last March frightened some consumers, but they resumed their buying -- albeit at a somewhat slower pace -- when the credit restraints finally were lifted.
Mindful of the huge inventory overhang that they accumulated in the 1973-75 recession, businesses took pains to avoid excess stockpiling this year, averting the usual work-off period before recovery begins -- and the spurt of new orders that follows, as well.
Capital spending, which usually falls off sharply as the recession gets fully underway, has only begun to slow very significantly -- in part because the slide was so rapid. As a result, the pullback is likely to exert only a modest drag on the recovery.
Still, for all the brevity of the recession, no one is expecting the coming upturn to be vigorous or problem-free. Some analysts even are wondering whether the past year's slide wasn't actually too mild to provide the usual "benefits" in terms of fighting inflation.
George L. Perry, a Brookings Institution economist, notes that because businesses don't have to work off excess stocks this time around, the economy won't get the big "bounce-back" that usually follows a sharper inventory adjustment.
As a result, he says, the coming upturn is likely to be weak.
Moreover, economists say the past year's improvement on the inflation front -- threatened by accelerating food prices and the specter of rising interest rates -- shows no signs of continuing. At best, inflation will remain about the same.
"The recession did us a little bit of good on the underlying rate of inflation," Perry says, "but basically the numbers still are being buffeted around by the same factors that were present before the recession began. I don't see anything that points to big gains next year."
That the recession ended so quickly came as a surprise to economists. As late as August, most still were predicting the economy wouldn't turn around until some time in 1981. The slump wasn't even expected to reach bottom until December.
Ironically, the most accurate forecast this time came from the White House, where chief Carter economist Charles L. Schultze has been insisting from the start that the downslide would be brief. As a result, the president correctly held off on proposing any new economic stimulus -- such as a tax cut or new job programs -- earlier this year, in the process escaping a repeat of the mistake he made in 1977 and 1978 by overspurring the economy.)
But, beginning in mid-July, the major economic statistics began to turn up:
The year-long plunge in auto production and housing starts ended abruptly, with output in both industries beginning to edge modestly higher. New figures published last week confirmed that the recovery accelerated in September.
There were sharp rebounds in such key indicators as retail sales, consumer credit, new factory orders and industrial production. Industry payrolls also began to expand again, and the jobless rate actually declined during August -- to 7.6 percent from 7.8 percent.
The sudden pickup in sales spurred businessmen to rebuild their stocks again, confirming there would be no "inventory overhang" this time around to prolong the slump and postpone the recovery, as occurred in 1974.
Although private forecasters still seem divided over whether the official third-quarter gross national product figures ultimately will turn out positive or negative, the majority seem agreed generally that the downslide most likely has hit bottom and probably reached its turning-point in July or August.
At the same time, however, analysts still have not reached a consensus on what will happen now -- whether inflation will intensify again in the face of the coming recovery or whether things will continue as they were before the slump began.
Federal Reserve Board Chairman Paul A. Volcker has warned that the recovery could be choked off prematurely if financial markets -- fearing renewed inflation from, say, enactment of a big tax-reduction bill next year -- begin pushing interest rates higher again.
If that happens, economists say, it could spawn a replay of 1980's interest-rate crunch. In that case, home mortgage money would quickly dry up again, bringing on another slump in the construction industry. And consumer spending most likely would fall off once more.
And Murray L. Weidenbaum, former Nixon administration Treasury economist, frets that the Fed's recent actions in allowing the money supply to surge could result in a speedup in the inflation rate later next year.
Having tightened money substantially in early 1980 and then relaxed the monetary reins, Weidenbaum says, the central bank is paving the way for a rapid first half in 1981, followed by some overheating.
The consensus is that if the recovery does stall next year, the resulting dip most likely will be a mild one, not a full repeat of the sharp V-shaped recession the nation experienced over the past few months.
Here is what forecasters generally are predicting for the rest of this year and 1981:
THE RECOVERY: With the slide now at or near bottom, the economy will begin growing again in the current quarter or final three months of this year, but the upturn will be sluggish, at least through the first half of 1981.
The bulk of the forecasts show a modest overall growth rate of 1 percent to 2 percent in 1981 -- well below the 5 percent to 6 percent usually associated with vigorous recoveries -- after declining 1.5 percent or so in 1980.
UNEMPLOYMENT: Even though the slide has ended, the unemployment rate will continue to edge up for several more months -- as it does after the end of every recession -- though not quite as high as forecasters once feared.
Expectations now are for the jobless rate to edge up to the 8 percent range by mid-1981 -- from the current 7.6 percent. However, forecasters are more uncertain than they usually are. The jobless rate so far has remained far lower than predicted.
INFLATION: Despite the body-blow of the recession, the underlying inflation rate hasn't really improved much over the past few months and isn't likely to in 1981, most economists say.
The forecasts now call for consumer prices to rise by just over 9 percent next year, compared with an estimated 13.6 percent increase this year and 11.3 percent rise in 1979.
However, the so-called "underlying" rate of inflation -- excluding short-term volatile factors such as food-price increases and energy-price boosts -- is expected to remain in the 9 percent range, from this year's 9 percent to 10 percent.
The one exception to this pessimistic outlook on inflation is Joel Popkin, the respected Washington-based economist, who believes the consumer price index could begin slowing to the 8 percent range in 1981, following a modest upsurge between now and December.
But there still are uncertainties on the horizon:
Home mortgage interest rates, partly reflecting the rebound in demand for housing, have begun rising sharply again, raising the possibility of another slump in the construction industry that easily could snag the recovery.
Alan Greenspan, former Ford administration economist, asserts that the recent surge in mortgage rates already is threatening to stall the recovery -- at least temporarily -- beginning "in a month or two."
The financial markets have become jittery again over the recent spurt in money-supply growth by the Federal Reserve Board. If investors aren't convinced that the monetary aggregates can be slowed, interest rates could soar again.
The fundamental illness of the economy -- inflation -- has not been cured by the recession but merely had its fever reduced. Wage increases still are running high. Productivity is continuing to stagnate. And oil prices are high.
Weak economic growth rate in Europe, Canada and Japan this year and in 1981 is expected to act as a further drag on the U.S. economy, biting into American export sales and slowing the recovery here even more.
This grim combination is likely to pose a particularly thorny problem for whatever administration is in power next year.
Most analysts agree the economy undoubtedly will need some stimulus -- and most likely will get it -- in the form of a major tax cut in 1981. But how can the government provide it without reigniting inflation psychology?
Both President Carter and GOP presidential candidate Ronald Reagan have called for sizable tax reductions for 1981, but neither has outlined any major new anti-inflation plan. Reagan's proposed spending cuts are relatively modest.
Meanwhile, the Federal Reserve Board seems unlikely to abandon its plan for continued gradual tightening of the nation's money and credit as long as inflation still is raging ahead.
As a result, both the economy and the White House could be caught in a bind next year. It's almost as though the recession had never occurred.