WHILE CONGRESS hashes out details of next year's budget, it's easy to forget that larger happenings in the economy can have more effect on the federal deficit than any decision Congress is likely to make. If recent indicators are a guide to the longer term, Congress may find itself fighting future deficits far larger than it now anticipates.
The latest troubling statistic is the unemployment rate released on Friday. It showed civilian unemployment still at the 7.3 percent level at which it has remained, with some wobbling, since last fall. The number of jobs in the economy rose somewhat, but at a slightly slower pace than is typical of this season of the year. Manufacturing jobs -- reflecting the fall-off in factory goods orders reported earlier in the week -- fell for the third consecutive month despite continued growth in military weapons production.
Unemployment, of course, is an old-fashionned sort of indicator -- the kind of number that Keynesians tend to focus on. A more pertinent statistic for supply-side analysts is the productivity meas published a week earlier. That figure was no more encouraging. Productivity, measured as output per hours worked, dropped at an annual rate of 1.2 percent in the first quarter, the second quarterly decline in the last nine months.
It would be a mistake, of course, to read too much into a few months' experience. But the recent productivity numbers certainly do not give comfort to economists who saw in the strong productivity growth in 1983 and the first half of 1984 a fundamental shift in the economy rather than simply the expected bounce-back from a deep recession.
The supply-siders' interest in productivity growth is not, however, misplaced. Rising output by workers determines, in large part, whether living standards improve. As economists Frank Levy and Richard Michel point out in this month's American Demographics magazine, the poor -- and still largely unexplained -- productivity experience of the 1970s made it much harder for the country to absorb the losses associated with the ma- jor OPEC oil increases. Without productivity growth, catch-up wage increases only produced more inflation, and families' real purchasing power declined.
A return to the low productivity trend of the 1970s, especially if combined with relatively high unemployment, would mean that many families wouldn't be feeling better off when the next presidential election rolls around. It would also mean that the huge budget deficits -- now projected on the assumptions of solid productivity growth and declining unemployment -- would be still larger. Of course, if Congress succeeds in cutting the deficit now, the chances for a return to healthy economic growth would be greatly improved. That's why there is double pay-off to prompt congressional action on the budget.