A survey of nearly 350 members of the National Association of Business Economists shows that they expect only a modest pickup in the economy before a recession begins either in the latter part of 1986 or early 1987.
Kathleen M. Cooper of Security Pacific National Bank, a vice president of NABE, said the survey also showed the members expect small increases in both inflation and unemployment in coming quarters. Cooper released the survey results at the NABE's annual meeting here.
For the current quarter, 44 percent of those responding said demand for their companies' goods and services was rising, with 33 percent reporting no change and 23 percent declining demand. Those figures were only slightly better than in the second quarter of this year, and otherwise the worst shown by the quarterly survey since the beginning of 1983.
Only 16 percent of the companies increased their employment this quarter, compared with 30 percent that reduced it, Cooper said.
Underscoring the weakness, nearly half the respondents reported falling profit margins and only 22 percent said their profits were rising. Almost twice as many of the companies' prices were falling as were going up.
"One result," Cooper said, "is that capital investment is beginning to suffer. The percentage of our overall membership reflecting rising capital outlays has fallen from 50 percent a year ago to 31 percent today. For goods-producing industries, the decline has been even more dramatic -- from 59 percent to 30 percent.
"Being bombarded with all of this negativism, our sights are not set very high for 1986 -- no matter what industry we represent," Cooper continued. "We anticipate real growth of only 2.7 percent from this year's fourth quarter to next year's, profit expansion of less than 4 percent, and a slight uptick in the unemployment rate."
The slow pace for the economy over the past year or so has caused many of the NABE members to push later the date at which they think a recession will begin. Nevertheless, a majority still expects a downturn to occur before the end of 1986 and three-fourths say it will hit by the middle of 1987.
At the same session at which Cooper presented the survey results, two other speakers differed with the median results of the survey and with each other.
One of them, James Annable, chief economist of the First National Bank of Chicago, agreed with the consensus that real economic growth would be modest next year. But he challenged the prediction of a recession beginning in 1986.
Annable argued that recessions usually follow either of two developments -- a significant unintended inventory buildup, correction of which can lead to a sharp drop in production, or a rapid inflation.
Business has been so badly burned by unexpected inventory buildups in the past that production now tends to adjust very quickly to any drop in purchases, Annable said. And, therefore, this is not likely to be a contributing cause to a recession in 1986.
"In the circumstances of the U.S. economy today, inflation is the key to the timing of the next recession," Annable continued. "As long as it continues moderate, the odds are against a downturn. And the best bet . . . is that inflation stays well-behaved next year.
"It all adds up to no recession through 1986," he said.
The third speaker, Lief Olsen, an economic consultant formerly with Citibank, said that the rapid rate of money supply growth so far this year means "that right now, we are well-advanced toward higher growth in a short cycle.
"These short cycles are produced by compensatory adjustments in monetary policy in response to evidence that the economy is running too rapidly, as in early 1984, or too slowly, as in the past 12 months," Olsen said.