A survey of the nation's business economists finds them worried by looming federal deficits despite their predictions of a relatively trouble-free recovery during the next 18 months.
The economists, surveyed by the National Association of Business Economists, said the steady, calm recovery they expect through next year may not be sustained "without major budget surgery."
The Congressional Budget Office said last week that if Congress adheres to its budget resolution calling for $73 billion in tax increases through 1986 and expenditure reductions, deficits may decline to about $146 billion by 1986. Without such budget surgery, deficits could remain in the $200 billion range and threaten to stifle the recovery by causing interest rates to rise, the CBO warned.
Despite their reservations about the effect of federal deficits on the economy, the business economists expect the recovery to continue "in a remarkably serene way," said NABE President Edgar R. Fiedler.
Through next year the economists "see no outbreak of inflation, no upsurge in interest rates and no new recession," Fiedler said. "The theme is all buoyancy and reassurance. The economists' projections are so free of anxiety that we appear to be entering an interlude of cyclical tranquility--18 months of healthy growth without excesses."
The economists in the survey expect inflation, as measured by the Consumer Price Index, to increase at an annual rate of 4.2 percent during the second half of this year and by 5.1 percent next year. Many other economists expect inflation to run between 4 percent and 5 percent this year and next.
The survey predicted the unemployment rate should drop to 9.2 percent by the end of this year, from the current 9.5 percent rate, and to 8.5 percent by the fourth quarter of 1984.
Real growth should be at a 5.4 percent annual rate for the second half of this year, according to the survey. Although that would be much lower than the 9.2 percent rate reported by the government for the second quarter, it is in line with the first-half average. The economists also forecast 4.6 percent growth in the gross national product in 1984, the average for the second year of previous cyclical recoveries.
One portent of increased business activity is the survey's report that 66 percent of the economists questioned said demand had risen. Last May, 59 percent said that demand for their companies' products had increased, Fiedler said.
The economists also predicted that the prime interest rate should remain about the same through December and drop from 11 percent to 10.9 percent next June.
Of the survey respondents, 31 percent said they saw employment rise during the past three months, compared with 52 percent who said it remained the same and 17 percent who said employment fell. During that period, 39 percent of the survey participants said their firms' capital investment outlays rose, 14 percent said they fell, and 46 percent said outlays remained the same.
Profits also have improved for the companies represented, with 45 percent of the economists surveyed reporting higher profit margins in the last three months, 29 percent reporting that they fell, and 27 percent saying they were unchanged during the last three months.
Prices largely stayed the same, while 55 percent of the business economists said the wages they paid were unchanged, 40 percent said the cost of labor rose, and 6 percent said it fell. By comparison, last November 10 percent of the group said wages of their employes fell, 38 percent said wages rose and 52 percent said that they remained the same.