Brookings Institution research director Alice M. Rivlin said yesterday that "despite a lot of viewing with alarm, . . . there are no signs" of a recession, and predicted instead slower and healthier growth of 3 to 4 percent next year.
"That's what we all want, and that is not a disaster scenario," she told reporters at a breakfast.
But Rivlin, former director of the Congressional Budget Office, added that, paradoxically, the economy's slowdown from its unsustainable pace earlier this year will be taken by some as an excuse to delay action to reduce the budget deficit, which she labeled the most serious challenge to the nation.
"I'm more pessimistic about action being taken on the deficit than I was when interest rates were rising," she said, adding that, if action isn't taken on the deficit, "then in the long run, we're in deep trouble."
In dismissing concern about a recession next year -- a few people have argued that it already has started -- Rivlin said that "the usual signs of a boom coming to an end are prices rising, interest rates rising, the economy bumping up against capacity, labor shortages -- we haven't had any of that. And indeed, if this is the beginning of an unforeseen recession, it will be a very unusual event in economic history . . . .
"It would be the first time that I can think of that you had a strong recovery that for no apparent reason is going into recession when nobody thought it would."
She said "I would do everything possible" to cope with the projected series of $200 billion annual deficits, including increasing taxes, cutting defense programs substantially ("we're on a hardware buying binge") and adopting a one-year freeze on domestic spending programs, followed by longer-run reductions in entitlement programs.
"This is a situation that just cries out for presidential leadership," Rivlin said. Without a strong guiding hand from the White House, it would be difficult for Congress to deal with the deficit "by themselves," she said.
Many economists have expressed concern recently that the precipitate drop in the gross national product growth rate from 7.1 percent in the second quarter to 1.9 percent in the third quarter presages a recession some time in 1985.
Administration officials, who had predicted a 4 percent fourth-quarter growth rate, have cut their estimates way back, and some privately acknowledge that the final months of the year could turn out to be flat, or even show a slight contraction. Some private economists are forecasting a downturn in the leading indicators index to be published later this week.
But Rivlin said she thinks that the current phase is merely "a transition" from the hyperactivity of the first half of the year, when real growth averaged 8.5 percent, to a more typical pace.
"On the economy, I'd like to say a word in defense of slowing down," Rivlin said. "There is such a lot of viewing with alarm because of the third-quarter statistics that it might be useful to remind ourselves that, if the slowdown is, as I think, just a transition to a slower-growth economy next year in the range of 3 to 4 percent, that's basically what we all wanted . . .
"Four percent would be better than 3 percent , but it was never in the cards -- nor was it desirable -- for the economy to continue growing at the rates of 1983 and the first half of 1984," she said.
Reminded that some economists view 3 percent growth as a "growth recession" in which unemployment increases, Rivlin said, "I don't know exactly what the magic number is, but the labor force is not growing as rapidly as it was in the 1970s, so you don't have quite as much running to do to stand still."
The pace of economic activity until mid-1984 was pushing the economy to its capacity limits, Rivlin said. "If there was ever any doubt in peoples' minds of what controls interest rates, we saw it in the spring: Large government borrowing and a rapidly growing economy gives you rapidly rising interest rates, unless the Fed is willing to offset it, and they weren't."
Rivlin said she wouldn't change her no-recession forecast even if there were further slippage in the fourth-quarter GNP (which she acknowledged is likely). It would take "a couple of more quarters" to convince her that a recession was at hand, "and by that time the Fed would be trying to turn it around, probably successfully," she said.