The 1980 recession may have reached bottom in July or August and should be followed by a slow recovery next year and in 1982, the House Committee on Small Business predicted yesterday.
Rep. Neal Smith (D-Iowa), chairman of the House Small Business Committee, said the forecast was based on recent increases in industrial production, housing starts and auto sales during the summer, coupled with the rapid drop in record-high interest rates and a relatively lean inventory policy of businesses last year and this year.
Chief presidential economist Charles L. Schultze said in testimony before the House Budget Committee earlier this month that "the recession is slowing and will bottom out before long."
However, the committee report said serious problems remain. A slow recovery is expected in 1981 and 1982 and unemployment and inflation are expected to continue at relatively high rates -- between 7 percent and 8 percent for unemployment and 8 percent and 11 percent for inflation.
Other economists earlier this month said they are still forecasting a sluggish recovery with the unemployment rate remaining high through most of next year. They also said inflation will be back on the rise, but the outlook is still uncertain.
The underlying rate of inflation, according to the report, is continuing at about 9 percent. Oil prices are projected to increase by about 17 percent in 1981 and 1982 which is "a substantial improvement over the hugh increases in 1979 and 1980," the report said. Wages will accelerate as the economy recovers and as past inflation is included into new contracts, the report said. r
Housing is expected to make steady gains, reaching 1979 housing-start levels by 1981, Smith said.
In monetary policy, Federal Reserve Board Chairman Pual A. Volcker is "expected to keep a fairly tight rein on the money supply in order to curb inflationary pressures. This is likely to prevent a strong resurgence in housing starts," the report said.
Interest rates are expected to stay near current levels, Smith said. Oil and food price rises are likely to put upward pressure on interest rates which could retard recovery and "lead to a further decline in output and increase unemployment," Smith said.