The American Business Conference favors a reduction in defense expenditures, the chairman of the organization of chief executive officers of 100 smaller, growth-oriented companies, said yesterday.

With a defense budget of $1.5 trillion over several years, "there's some feeling that there are areas in there where the kinds of efficiencies that are being imposed upon the entitlement programs and other areas of government could be imposed on defense expenditures," said Arthur Levitt Jr.

Defense companies represented on the American Business Conference share that feeling, Levitt said in an interview on Cable News Network. At the same time, he added, ABC members believe there also should be a reduction in entitlement programs and an attempt to return Social Security to a sound basis.

Levitt, who is also chairman and chief executive of the American Stock Exchange, said he doesn't share the widely held belief among economists that there will be a strong rebound in the economy in 1983.

"I think in the absence of a number of factors, our rebound, in terms of gross national product, would do well to be as much as 3 1/2 to 4 percent," Levitt estimated. "That's a pretty puny rebound in the face of the most severe recession that we've had in many years." evitt called a budget deficit of $150 billion or $170 billion "untenable," adding, "I don't think we will see any kind of recovery in the face of that kind of deficit."

Moreover, unless the administration and Congress are able to put their differences aside and stop the "endless bickering," Levitt said, interest rates won't continue their decline and the recent surge in the stock market will be short-lived.

Levitt said the trend toward record performances on Wall Street started with a "gradually growing perception" that inflation really is declining, an easier Federal Reserve policy and a great deal of buying by foreign investors. The bull market started out as an institutional rush to buy equities but gradually grew to a large public demand for stocks as well, he said.