In America's executive suites, the watchword is caution.
Their companies mired in the recession, their forecasts of recovery repeatedly frustrated, their attempts to borrow money discouraged by high interest rates, business leaders have hunkered down to wait out the end of the economic storm.
As the recession has dragged on, many of them feel, Reaganomics has begun to show flaws most of them never anticipated when they committed business' overwhelming support to Ronald Reagan's candidacy. Some are calling for slashing cuts in defense spending as a means to reduce the burgeoning federal budget and, in turn, take pressure off interest rates.
And those that are willing to hazard a guess on when the economy will recover say the upturn will likely be gradual. They say consumers seem reluctant, even afraid, to spend money gained through tax cuts, and those fears are echoed at the top of the corporate ladder, where the prevailing mood often seems to be to let others get on the recovery bandwagon first.
Nobody wants to be too hasty to commit money to expansion to fit a newly growing economy. The executives have been burned too often by rebounds that have not come or that have sputtered and resulted in an even steeper slump.
"I'm scared to death," said Roger Regelbrugge, president of Korf Industries Inc., a Charlotte, N.C.-based steelmaker that as the nation's biggest producer of steel-wire rod has felt first hand the recession's impact on manufacturing industries.
"If an upturn occurs, our product is well positioned to take advantage of it, but it is used in industries that are all depressed: springs for furniture, mesh for construction and roadbuilding, agricultural fencing," he said. "We don't see any life in the market."
"The average post-World War II recession has lasted 11 months, which in this case would have meant the recession would have been over by June," said Thomas E. Swanstrom, corporate economist at Sears Roebuck & Co. "But the weakness continued after that point."
Nobody blames the recession wholly on the Reagan administration. But the slump has raised doubts in some business quarters about the policies of Reaganomics.
"I think it's pretty well accepted that Reaganomics hasn't worked out very well so far," Swanstrom said.
"I think there are problems in the original concept," he added. "I would favor going back to the drawing board and taking another look at the whole situation. Supply-side economics has some problems that were not anticipated when it was first looked at."
"I think that President Reagan's program has been implemented very poorly," GTE Corp. President Thomas Vanderslice said. "I thought they went after the tax cuts before the spending reductions. Something was flaky about that from the beginning."
One change many businessmen would like to see is a renewed emphasis on spending cuts -- particularly in the defense sector. "Any budget the size of the defense budget has got to have some fat in it," said William M. Valiant, vice president and treasurer at Borg-Warner Corp., which has its share of defense contracts. "The Defense Department, when you count all the branches of the armed forces, is such a humongous operation. You mean to tell me you can't cut a swath through there and not affect our defenses?"
Edward Jefferson, chairman of E. I. duPont de Nemours & Co., said that the Reagan administration and the Federal Reserve Board, in making the war against inflation the primary goal, have been aiming on the wrong target. "The effort [this year] should have been focused on recovery," said Jefferson, with an easing of interest rates that would have revived spending by business and consumers.
Even with the recent decline in interest rates, the cost of money for business remains high, Jefferson said. "You have to go back to the early 1930s to find costs comparable" to what business has faced in attempting to borrow this year. That factor will continue to depress business activity into next year, he added.
Others, however, stick by the Reagan policies. Vanderslice's boss, GTE chairman Theodore F. Brophy, said, "I think a lot of progress has been made in focusing on some of the critical economic problems. They haven't all been solved clearly, but if you look and try to measure things in terms of results, we do see interest rates down, we see inflation down."
At many times over the past couple of years, corporate chiefs at gatherings of stockholders, securities analysts or reporters have taken educated guesses as to when the economy would get better. But as predictions of an improved second half of 1981 gave way to forecasts of a better first half of 1982, and in turn to a recovery in the second half of the year, the enthusiasm for such prognostications has waned. Many business leaders, pressed for a forecast, now claim that their crystal balls are too cloudy.
"What we didn't anticipate is that the economy would be even worse in the first half from what it was at the beginning of the year," Valiant said. "We thought there would be pickup in the last half of the year, particularly in the fourth quarter, but now we wonder about that, because we don't see any pickup in order intake in many industries."
Those willing to predict a recovery give a variety of estimates, although many, like Valiant, are sure it isn't here quite yet.
"I think there are signs of recovery on the horizon," said Swanstrom, but he added that the indicators are long-range. "We do not see it in the statistics that are being released," he added.
"The recovery is under way, or will be very shortly, but it will be very slow, over an extended period of time," said Marvin Rogers, chief financial officer at Control Data Corp. "The recovery will be slow because there is a view in some quarters -- I happen to agree with it -- that if we adopt policies that would permit a rebound of the type we had in the past, we would suffer the kind of ills we had in the past, namely inflation."
"We don't think 1983 is going to be a booming year of the economy, but we definitely expect it to be up slightly from 1982, particularly in some of these industries that have been in a depression for three years," Valiant said. "I don't know if those industries can stay in a depressed state much longer. Of course, we said that last year. How low is low?"
Even where there have been signs of improvement, judging their magnitude depends on just what they are being measured against. Walter Joelson, chief economist at General Electric Co., said there have been improvements over immediately preceding quarters, but not over year-ago periods. "We probably will get a somewhat better fourth quarter, although it is still not clear whether the fourth quarter will be higher than the fourth quarter a year ago," he said.
Some executives are counting on the personal tax cuts that went into effect July 1 to provide fuel to the recovery -- something most agree they have failed so far to do. The executives note that personal income is up, but so far the additional money seems to be going into savings.
"It takes about three months for an upswing in real disposable personal income to be reflected in retail sales, and we think we are just about at that point now," said Robert Ward, president of the Evan-Picone sportswear division of Palm Beach Inc. "So I'm optimistic about holiday selling results."
"In the past when we've had tax cuts, the typical reaction has been to increase the savings rate, chiefly by paying down debt," Swanstrom said. "There's usually a lag reaction to spending of the tax cut."
"I think most economists are surprised that all the increase in income is being saved, as opposed to any aggregate of it spilling over into consumption," said Theodore Eck, chief economist at Standard Oil Co. of Indiana. Although spurring savings was a key goal of Reaganomics, he said, "I think all that is working too well . . . The immediate impact of saving is not buying."
But Christopher Gill, president of Gill Savings Co., a fast-growing savings institution in San Antonio, Tex., said, "Individual rates of savings look real good. Everybody is bellyaching because savers are saving instead of spending. But when we had a real strong economy and everybody was buying things, they were saying there wasn't enough saving."
If consumers do not meet the expectations of the Reagan economic program and lead the recovery, business leaders wonder who will. Business investment also is off, and high interest rates have discouraged lending that could fuel expansion.
"There are three players at the party here, all of whom are unwilling to take the first step," said Eck, referring to consumers, businessmen and lenders. "I think a lot of businesses are waiting for somebody else to start buying."
"Our feeling is, let's only spend the money we have to spend," Regelbrugge said. "We have some interesting projects that we could spend money on, but we're not going to do it now."
Business investment is lagging for other reasons, including high interest rates, a lack of confidence in the economy, and a general oversupply of manufacturing capacity caused by the economic slowdown.
Many companies see no need to lay immediate expansion plans because they have learned in the recession to operate more efficiently. Others will be feeling the devastating effects of the downturn for some time.
"I think many companies have seen their balance sheets damaged -- reductions in the amount of equity, increases in short-term debt -- and we need to see a period of balance-sheet strengthening," Brophy said. "I think that all companies have tried to become more efficient, improve their productivity, and in doing so have examined every one of their programs, including their capital investment programs. When you're operating at a low percentage of capacity, there is less of an incentive to invest."
For similar reasons, sustaining the recovery will be difficult -- a possibility that conjures up for many executives visions of last year's abortive recovery, which led into an even more serious recession.
And government officials will be walking a tightrope during a recovery to keep the economy's resurgence from triggering a new wave of inflation. Most businessmen expect the Federal Reserve to again raise interest rates if it appears that the economy is recovering so quickly that the inflationary spiral will be renewed.
Said Robert H. Malott, chairman of FMC Corp.: "A broad, sustained recovery will require a substantial increase in investment by industry in new plant and equipment. Unfortunately, new capital spending will not pick up until interest rates, particularly long-term interest rates, decline from their extremely high levels. And it's unrealistic to expect interest rates to come down until investors become confident that the federal government is truly committed to anti-inflationary policies."
"The recession is bottoming out. We're going to have a recovery," Gill said. "But what is the Fed going to do? Is the Fed going to permit a rapid recovery? They should. This is no time for ideologues, no time for dogma."