Commerce Secretary Malcolm Baldrige, warning "we're in for some tough times," said yesterday the nation's unemployment rate could reach 9 percent during the current recession.
Baldrige was the second administration cabinet official to project a jobless rate as high as 9 percent, following the assessment Sunday by Murray Weidenbaum, chairman of the Council of Economic Advisers.
"We're in for some tough times before it starts to pick up," Baldrige told reporters. Both the fourth quarter and the first quarter of 1982 will be "difficult," with a recovery not likely to begin until the middle of next year, he said.
Meanwhile, in a move to ease credit conditions, the Federal Reserve Board voted unanimously yesterday to eliminate a surcharge on borrowing from the Fed by large financial institutions.
The surcharge was imposed last spring to limit frequent borrowing by these institutions, as part of the Fed's credit restraint actions. Originally, the surcharge added three percentage points to the discount rate applied to borrowing from the Federal Reserve, but it was reduced to 2 percent last month. The board said it considers the surcharge "unnecessary in current circumstances" with loan demand falling.
In further evidence of an economic slump, the Fed reported that the nation's factories operated at 76.9 percent of capacity in October, only two percentage points above the low during last year's recession. The auto industry was near its all-time low of 1980, with widespread slowdowns and closings of production plants because of depressed sales.
Baldrige echoed the administration's promise that the tax cuts, already enacted for next year, will revive the economy in the second half of 1982, and saw hopeful signs in the recent decline in the inflation rate and the prime lending rate. Crocker National Bank of San Francisco yesterday lowered its prime to 16 percent and Riggs National Bank joined many of the large commercial banks in dropping to 16 1/2 percent, down from a 21 1/2 percent peak a year ago.
The prime may drop another two percentage points, he added. "We haven't seen the bottom yet." That would still leave the prime above 14 percent--an extremely high mark during a recession.
Baldrige's statement added to the more pessimistic predictions about the next six months, voiced recently by some administration economic spokesmen. A debate continues within the administration on how deep the recession will be and whether a new round of high interest rates will accompany the expected recovery later next year. Treasury officials are generally taking a more optimistic view than the Council of Economic Advisers and budget officials, and the outcome of the debate will determine the economic assumptions in the fiscal 1983 budget to be published in January. A major part of the debate centers on the budget deficit issue raised by budget director David Stockman in the controversial Atlantic Monthly article, Special Trade Representative William Brock told reporters yesterday. The administration strategy depends on the resumption of strong economic growth without inflation next year following the recession, and the massive tax cuts in the administration's plan are meant to trigger that growth. The question, said Brock, is whether this economic growth will come fast enough to limit future budget deficits and maintain public confidence in the Reagan plan.