The economy has hit a "flat" spot, or a "temporary lull," as White House press secretary Jody Powell put it yesterday, but Charles E. Schultze, chairman of the Council of Economic Advisers, doesn't think the nation is facing bad times or recession.
There are gloom-and-doomers among private economists who think the latest round of weak statistics does in fact spell an economic recession ahead. For example, Michael K. Evans of Chase Econometrics Associates Inc. says the nation "is even further along the road to recession than we previously indicated."
But the equally respected Otto Eckstein of Data Resources Inc. says the economy's "deceleration does not spell the beginning of a slide into recession."
What everybody agrees on is the following:
The economy is slowing down, as expected from a growth rate of 7 per cent in the first half of the year to a lesser and as yet undetermined pace in the second half.
A primary factor in this pause has been the disappointing level of retail sales. Businessmen, anxious not to be caught with heavy inventories, have trimmed their orders accordingly - and that means production cutbacks. In turn, this is reflected in a creep-up in the unemployment rate.
Capital spending, which the Carter administration hoped would take up the slack when consumer spending edged off from the peak pace earlier in the year, hasn't fulfilled expectations. Yet, optimistic reports on what businessmen may spend next year is one of the things that keeps the administration from fretting too much.
A serious dampening influence, and one that is sure to continue, is the hefty U.S. trade deficit, which hit a $25 billion rate in the first half of the year. Although much of the deficit is blamed on the high cost of oil imports, U.S. export volume has been sluggish, mostly because weakness in The European and Japanese economies limits their ability to buy American goods.
Administration officials yesterday rejected the notion that abandonment of the once-proposed $50 tax rebate is a factor in the current situation, since that was designed for an immediate transfusion, earlier in the year, which they say proved unnecessary.
But the administration appears caught by surprise by the erratic upward movement in total black unemployment to 14.5 per cent in August, or 2.4 times the white rate of 6.1 per cent. A group of liberal senators and congressmen warned President Carter in a letter Aug. 3 that developments so far in the year "Have masked what has really been a two-tier recovery, favoring white adult males, and males in general."
The critical question is whether the current "lull" will extent into a prolonged pause. This would be the case if the Evans forecast of only 3 per cent growth in the second half is borne out. Former CEA chairman Alan Greenspan's New York advisory firm warns of a slide into the sluggish European growth pattern next year unless business investment perks up.
In a telephone interview yesterday, Schultze stuck to his forecast that the growth rate will be "in the neighborhood" of 5 per cent for the second half - possibly "a shade" lower in the third quarter and a shade higher than 5 per cent in the fourth.
The administration analysis is that the decline in retail sales is more a reflection of a return to a normal rate of savings than any sign of lagging confidence. They cite statistics showing solid intentions to buy consumer goods.
But even more important, they say, will be a pronounced thrust, from government spending at both the federal and local levels later this year, as the second stage of the Carter stimulus program begins to take effect.
According to government economists, there will be added stimulus from government spending amounting to an annual rate of $13 billion in the fourth quarter of 1977, and rising to $21 billion in the second quarter of next year.
Officials said yesterday that the time had not arrived for the consideration of any new or additional expansionary programs. But neither were they flatly ruling out the possibility if the statistics should turn sour. "We're intelligent people," said one adviser.
Unemployment numbers, of course, pack a political wallop, and the high black jobless clearly has President Carter worried, even if the August number should turn out to be an aberration. But in addition, the economists intend to watch two other sets of statistics carefully; the rate of savings where a big increase would accelerate worries about consumer willingness to spend the usual share of their income, and plant and equipment outlays, where a reduction would indicate business reluctance to spend.
Eckstein makes the point that the current slower pattern is more or less inevitable "after nine quarters of 5.9 per cent real growth." The situation is tolerable, he argues, provided the Federal Reserve resists an excessively tight monetary policy.
Former CEA Chairman Arthur M. Okun makes the same point, in a slightly different way, in judging the prospects for continuance of the "mature" expansion of some 29 months since March, 1975.
"There are no government policy actions that seem likely to snuff out the expansion or to send it into an unusually sustainable boom," Okun says. Taking those things into account. I see the odds on expanding for another year more like 4 to 1 than even money. AndI'd bet even money on two more years of expansion."