An announcement from General Electric a few days ago struck a descriptive note for this recession-wracked holiday season: 600 people will soon be out of work in Plymouth, Fla., because GE is permanently closing a plant that makes Christmas lights.
At the plants of computer manufacturers in Massachusetts and machine tool makers in Ohio, at plywood mills in the Pacific Northwest, and at automobile factories everywhere, the layoff notices are going out.
Sales of everything from houses and airplanes to tractors and light bulbs are falling, and with the release of every new economic statistic, the recession forecasts worsen.
The housing and auto industries have been depressed for months, but inflation remained at the top of the economic problem list, especially since the slump did not seem to be spreading. Now the sickness in housing and autos is striking almost everywhere except in defense industries. The entire economy is much sicker than most people realize.
Unemployment clearly appears headed toward the 9 percent neighborhood. Eight and a half million people were out of work last month and another 5 million were employed only part-time because they could not find full-time jobs.
Predictions that the nation's output of goods and services will plummet at a 5 percent annual rate this quarter are becoming common. Bearish economists now are thinking in terms of a 6 percent rate of decline, possibly more.
Nor is this slump apt to be a one-quarter wonder like the 1980 recession, in which GNP adjusted for inflation fell at a record 9.9 percent annual rate in the second quarter and then began to rebound in third. This time real GNP is likely to continue to drop in the first quarter of 1982 at a rate perhaps half as great as in the current three months.
Ironically, forecasters became even more confident that the decline will continue after the Commerce Department announced recently that the economy grew at a 0.6 percent rate in the third quarter rather than contracting as preliminary estimates had indicated. In this good-news-is-bad-news world, the forecasters noted that the upward revision was due to a bigger buildup of business inventories, not higher sales. Now businesses will have to get rid of those additional unwanted stocks, and that will mean more production cuts and more layoffs.
As part of the process of adjusting production, the Commerce Department reported last week that new orders for durable goods plunged a seasonally adjusted 8 percent in October. It was the third consecutive monthly decline and the largest since April, 1979, when the figures were distorted by a nationwide trucking strike.
"This thing is falling very rapidly," declared economist Alan Greenspan of Townsend-Greenspan & Co., whose comment was echoed by several other forecasters. "The next three to six months will be worse than we thought," said Lawrence Chimerine of Chase Econometrics.
Moreover, most of the economic seers think the risks are all on the "down side" -- that is, it is much more likely that reality will be worse than they currently predict rather than that it will be better. However, there is a widespread expectation that the recession will hit bottom no later than early next spring.
That process of "forming a bottom" for the recession will occur even though the Reagan administration plans no specific government anti-recession actions, other than the easing of monetary policy by the Federal Reserve that has already allowed interest rates to decline sharply, the forecasters agree.
On the other hand they uniformly would like to see action on fiscal policy to reduce future budget deficits. "Until President Reagan bites the bullet on the tax program" by increasing taxes one way or another, the longer term economic outlook remains uncertain, Eckstein said.
With the beginning of the steep economic decline in October, the unemployment rate hit 8 percent, except for the 12 months of 1975, the only time that has happened since early in World War II. The 1973-75 recession was the worst since the Depression of the 1930s and so far there is no indication this slump will be that bad.
Between November, 1973, and March, 1975--the beginning and end of that recession--real output tumbled by nearly 5 percent, in large part because of a huge swing from inventory building to inventory cutting. The overhang of unwanted business stocks is much, much smaller this time around, and most forecasters believe the total drop in the level of economic activity will be only about half as large as in the '73-'75 recession. Such a drop would be in the same ball park as the two recessions of the 1950s and last year's version. It would be more severe than those of 1960-61 and 1969-70.
But such comparisons are somewhat misleading. This recession did not begin after a long, sustained recovery that had returned unemployment to some previous low level. The Federal Reserve's tight money policies--which were intended to reduce inflation and which were firmly endorsed by the Reagan administration--produced record high interest rates that aborted the recovery from the 1980 recession.
Unemployment, which was below the 6 percent level during most of 1979, rose to 7.6 percent for several months in 1980 but then never went below 7 percent this year. In other words, even though this recession only began a short time ago, unemployment has been high for a much longer period.
The high level of unemployment is just one indication of the losses of income and output the nation suffers in a recession. Machines and plants stand idle as well as workers, and business profits fall.
Typically, the personal saving rate rises during a recession, as individuals worried about future employment prospects put off major purchases. But total saving--the source of funds for investment and therefore the source of future income--goes down along with current personal incomes and corporate profits.
Meanwhile, businesses are rolling back their capital spending plans for 1982 and homebuilders are staring disaster in the face. Single-family housing starts fell to an annual rate of only 487,000 units in October, the lowest level in the more than two decades such statistics have been kept. The prospects for a housing recovery in 1982 are bleak, industry experts say.
The deepening recession also will balloon the size of the federal budget deficit as spending for some programs--unemployment benefits, for example--rises rapidly at the same time tax receipts are falling because of lower personal incomes and lower corporate profits. The deficit for the current fiscal year could easily top $90 billion and, with the scheduled personal income tax cuts, be well over $100 billion in fiscal 1983.
About the only saving grace of a recession is that it does tend to reduce inflation by putting downward pressure both on wages and prices, and that seems to be happening now. During 1980, average hourly earnings of production workers rose 9.6 percent. That will be trimmed to an estimated 8.3 percent this year. With unions in a number of normally pace setting industries, such as autos and steel, facing contract negotiations next year at a time when their industries are under enormous financial pressures, the rate of wage increases probably will slow even more.
As a result of smaller wage hikes, and a number of other developments, including relatively stable oil prices and a good prospect for food costs, consumer prices should be rising in the 7 percent to 8 percent range in 1982, compared to about 10 percent this year.
An economic recovery is a good bet for the second half of 1982, particularly with a 10 percent personal income tax cut worth about $30 billion already on the books for July 1. However, the Federal Reserve will still be pursuing its anti-inflation goals with ever lower targets for growth of the money supply. As the demand for money rises along with the economy late next year, the Fed may well have to put on the monetary clamps once more. If that occurs, then interest rates could shoot up and again kill a recovery.
In the short run, the signs all read "recession." In the longer run, they shout "uncertainty."