Most economic forecasters expect the figures for third-quarter gross national product to show a small decline in economic activity when the Commerce Department releases them next month. But whether they are up or down a tiny bit after adjustment for inflation, they will mask a continuing reality: Part of the economy is extraordinarily healthy and part of it is seriously ill.
The number of houses being started is close to the lowest point of the last two decades. Poor sales have pushed automobile production schedules for the fourth quarter to just over 1.6 million units, the lowest level since the final three months of 1970 when General Motors Corp. was shut down by a strike. Orders for major public works projects are drying up as federal, state and local governments retrench.
Meanwhile, with military spending on a sharp upward track, many contractors are looking forward to their best time in years. Several parts of the country already are caught up in an unremitting boom as a result of the search for oil and gas, increased coal production and outlays on the beginning of a synthetic-fuels industry.
The projections of the forecasters are a result of averaging these crosscurrents while trying to predict the outcome of the tug of war between the stimulus of tax cuts and the restraint of a tight-fisted monetary policy. It is no easy task.
Whether the change in real GNP for the quarter ending this month turns out to be positive, negative -- or "flat," as President Reagan's team of advisers told him yesterday -- it is clear that the overall economy is not growing strongly at the moment. But none of the forecasters expects even a moderately serious recession.
One of the more bearish short-term forecasts around is that of Alan Greenspan of Townsend-Greenspan & Co., who expects a small decline in real output this quarter and next, which would be three in a row and constitute a recession, he says. This limited decline would be followed by an equally small gain in the first quarter of 1982. "The persistence of record-high interest rates is taking a cumulative toll on the economy," he says.
Greenspan's pessimism evaporates by the end of 1982, however, when he predicts real GNP, fueled by diminishing inflation and the second round of tax cuts, will be rising at a 5.4 percent clip.
Otto Eckstein of Data Resources Inc., on the other hand, anticipates that the fourth quarter will see the beginning of a recovery in activity in which growth of real GNP will reach an annual rate of about 5 percent in the third quarter of next year, a quarter sooner than Greenspan.
In either case, 1982 stacks up as a much better year than 1981. The unemployment rate, 7.2 percent in August, will rise to 7.6 percent, according to DRI, and to 7.8 percent in the first quarter before declining to about 7 percent late next year, according to Greenspan. He is more optimistic on inflation, forecasting that consumer prices will rise at a 6.8 percent rate or less during next year. Eckstein's forecast is about a percentage point higher.
But faster economic growth will occur only if interest rates begin to come down, a somewhat uncertain prospect, both economists stress.
Eckstein expects only a modest drop in rates as the higher federal deficits that result from the successive rounds of tax cuts put new pressure on financial markets. The prime lending rate at banks will average 18 1/2 percent, and the highest-quality corporate bonds will yield 14 percent next year, he says. The pressure on markets will be greatest when income-tax withholding is cut 10 percent next July 1, he believes.
When that occurs, the congressional elections will be just four months away and the Federal Reserve will "face a grim dilemma whether to accommodate this stimulus," Eckstein told his clients recently. "The DRI forecast assumes that the Fed reaction will be very mild, with both long- and short-term interest rates rising little more than 100 basis points equal to 1 percentage point , and the money supply allowed to rise at the upper end of the target range during those months."
And he cautioned, "This is one of the high-risk assumptions in the forecast: The Federal Reserve could let the recovery proceed at a faster pace, or it could choose to convert the entire fiscal stimulus into higher interest rates, monetary restraint and crowding out of private expenditures by the enlarged federal deficit."
Greenspan has similar words of caution about his forecast. "Should short-term interest rates remain at current levels for too long or rise significantly further, we would be likely to see a more severe economic contraction, one dominated by financial stringency among financial institutions, particularly the thrifts, and probably among some nonfinancial corporations, as well."
The "risk of such problems cannot be ignored," he declares.