HOT SPRINGS, VA., OCT. 12 -- A cross-section of U.S. business leaders warned today that the nation has drawn close to a recession -- if one hasn't already begun -- and suggested that bumbling in Washington over the federal budget is an important obstacle to turning things around.
Congress and the White House are putting off tough decisions that must be made, and in the meantime confidence and investing are suffering, chief executives of major companies and banks suggested.
"It's hard to talk about it without getting mad," Xerox Corp. Chairman David T. Kearns said of the budget impasse. "It is a fiasco, and I do not have the slightest idea what the outcome" will be. He suggested that Washington would "muddle through without anything happening until after the election" in November and that the $500 billion worth of cuts being sought are "in high jeopardy."
Edmund T. Pratt Jr., chairman of Pfizer Inc., a New York-based drug firm, was also pessimistic about what members of Congress will do. "Most of them have kind of thrown their hands up with the difficulties they've gotten themselves into," he said.
Recession, the budget and the Persian Gulf crisis were foremost today on the minds of close to 100 chief executives attending a retreat staged semiannually at the Homestead resort in the Allegheny Mountains by the Business Council, an association of corporate leaders.
In the morning they were briefed on the economy and gulf crisis, and in the evening they were to hear about defense issues. In between, many took time out for golf, tennis and test drives in a Saturn, the new line of compact car on which General Motors Corp. is betting a good portion of its future.
The council's warning of a recession was based on a forecast prepared by a 19-member panel of economists from the council members' firms. Many of the numbers quoted in the forecast had become considerably gloomier since the panel last met in April.
At that time the consensus forecast by the 19 economists was for 2 percent annual growth in the last half of 1990 and 2.5 percent in the first half of 1991. Now their joint projection is that growth will slow to just 0.3 percent annual expansion in the second half of 1990, before picking up to 1.2 percent in the first half of 1991. In the second half of 1991, growth will accelerate to 2.6 percent, they predicted.
Individually, however, some of the panel's members are more pessimistic: Five of the 19 expect an outright recession, in which the economy would shrink, and those who don't predict a recession nonetheless think the possibility of one is stronger than they believed it to be in April.
Most of the panel members, however, did not think that any recession would be as serious as the ones that hit the United States between 1973 and 1975, when the economy shrank by 4.3 percent, or between 1981 and 1982, when it was off 3.4 percent.
Because indicator numbers gathered by the government lag behind actual events in the economy, it is not known whether a recession has already set in. But a number of business leaders here, including J.P. Morgan & Co. Chairman Lewis T. Preston, said they believed it's underway.
Executives also noted the softening of real estate prices. "There's nervousness in the market, and banks are under pressure," said Citicorp Chairman John S. Reed. The panel predicted that oil prices will help push up the consumer price index to a 6.1 percent annual rate in the second half of 1990 from 3.7 percent for the second quarter of this year. But it said that figure is likely to drop in 1991 and growth is likely to slowly pick up.
That scenario for fairly rapid recovery is based in part on a potentially risky assumption that oil prices will not stay long in the current $40-per-barrel range. This, in turn, is based on the expectation that there will be no war in the gulf or only a short one that won't harm oil fields.
Despite the difficulties, the U.S. trade deficit should continue to improve in 1990, the team predicted. The panel predicted the deficit will fall to $98 billion this year from $109 billion in 1989.
The biggest impact of the slowdown is likely to be in housing construction, purchases of consumer durables such as cars and refrigerators, and capital spending, the panel said. Other industries, however, would escape with little or no harm.
Overall, Business Council members seemed critical of the federal budget negotiations. One executive said he would have been fired if he had handled things so poorly. But others suggested it was the price of representative government. "I tear my hair out" over the budget process, said Citicorp's Reed. But "this is a process you have to tolerate. It's messy; it's not neat. But human relations aren't neat."