Economists have been predicting recession all this year as interest rates have climbed to record heights and stayed there. And just last week, presidential adviser Murray Weidenbaum said the recession could be here "right now."
But although the latest economic indicators certainly show the economy is sluggish, they depict a very different kind of recession from the usual variety. Indeed, private economist Otto Eckstein believes the present slowdown is so different from traditional postwar recessions that it cannot be classified as one.
Unemployment, rather than rising, has fallen in each of the past two months. Output in the nation's factories went up in July, the latest month reported. Orders for durable goods remain steady. There is little evidence that industry is being forced to build up unwanted inventories.
Eckstein thinks these and other data show that "we are not in recession" now. Other economists agree that the economy is going "sideways" rather than downwards, in the words of Charles Schultze, a former chairman of the Council of Economic Advisers under President Carter.
CEA member Jerry Jordan believes "it's too close to call now." It's a "mixed picture," with some sectors booming and others stagnant or declining, he said this week. The latest employment, output and retail sales figures still show strength, he pointed out. "I would look for what happens to final sales" this quarter, he said, and how auto sales hold up for the rest of August.
Analysts often say that a recession can be defined as two successive quarters of contraction in the economy's total output, or gross national product. But this is a guide rather than a definition. On this rule, 1981 might well count as a recession year while 1980 would not, although many experts would in fact put it the other way around.
In the second quarter of this year, the GNP slipped by 1.9 percent at an annual rate, and most forecasters, including Eckstein, expect another negative quarter now. In 1980 there was a collapse of output in the second quarter of the year -- GNP dropped at an annual rate of nearly 10 percent -- but it was followed by a recovery in the third and fourth quarters.
However, the slide in output in 1980 was so sharp that many people call it a recession. Unemployment rose as output fell. This year, by contrast, output in many sectors has remained reasonably strong, and employment is holding up despite the slight overall decline in real GNP.
Eckstein says the present slowdown is not a recession because "we just don't have" the collapse in business confidence that is usually part and parcel of a recession and that leads business to scrap capital spending plans, "dump labor" through layoffs and run down its inventories.
Such a collapse may not come, according to Alan Greenspan, one of President Reagan's group of outside economic advisers.
"There is nothing in the numbers that says there is imbalance in the economy," Greenspan said in an interview. In the usual business cycle, the downturn is precipitated when business inventories are high, capital goods production is running at an unsustainably high rate and savings are low. None of these signs of "imbalance" that might send the economy spinning downwards is present now, Greenspan said.
Since the war, recessions often have started with a credit squeeze that first has hit demand for housing and autos, and then choked off other credit demand and spending financed by credit, such as business investment.
But the business cycles have "usually been real" rather than financial, involving changes in real activity rather than in financial confidence, economist George Perry of the Brookings Institution said in an interview.
Perry believes that "now is a good time to wonder" whether the United States is in a recession. The economy has withstood this year's very high interest rates surprisingly well, he said, pointing out that only the housing market really is behaving as forecasters would expect. Despite a July rise in housing starts, reported yesterday, they remain low relative to the peaks last year and "have been bumping along just above 1 million for the last few months."
But if high rates persist, the economy could tip into a recession with unemployment rising and a more widespread drop in output, Perry believes. Moreover, he warned that the resilience so far could be "storing up trouble for the future," as a financial crisis with sizable bankruptcies eventually may trigger a recession if credit stays tight and interest rates do not come down.
Eckstein said that the more usual postwar recession has been triggered as firms suddenly "wake up" to the fact that markets no longer are booming and orders are drying up. There usually follows a scramble to unload inventories, lay off workers no longer needed and shrink debts, he said, adding that so far this year companies have not reported a slump in business.
One reason why this year's slowdown is different from the usual cyclical pattern is that it follows a fairly weak and short-lived recovery. Even with the unexpectedly rapid growth in the first quarter of this year, GNP was only 1 percent higher at this year's peak than at the prerecession peak in 1980, and just 3.6 percent up from the trough of the 1980 recession. CAPTION: (UPI photo): A worker posts prices on the big board at the Paris bourse as the U.S. dollar declined slightly in Europe yesterday. But the price of gold shot up in N.Y. by as much as $22.