A group of seven prominent economic forecasters today sketched an election year economic outlook that ranged from bad to worse. t
The seven, on a panel at the annual meeting of the American Economic Association, predicted:
Consumer price inflation stuck in the double digit range at least through the first half of 1980 and remaining close to that level into 1981.
A recession, likely already begun, that will push the unemployment rate to about 8 percent by the end of the year -- a recession, that will hit "absolute bottom about election day," as Lawrence Klein of the Wharton School put it.
A sharp decline in home building and even sharper drops in new car sales, with those two industries bearing the brunt of the recession.
A sluggish recovery that would do little to reduce unemployment in 1981 even if there is a modest tax cut next year.
None of the seven expects any sudden onslaught of good luck that could improve their unreservedly bleak outlook. On the other hand, new shocks such as a major disruption in world oil production or a new foreign exchange crisis involving the dollar could make it worse.
Harold Shapiro of the University of Michigan was probably the most optimistic, projecting a drop in the nation's output of goods and services, adjusted for inflation, of only one-half of 1 percent in 1980.
At the other end of the scale, Albert Wojnilower of the First Boston Corp., a financial markets expert, raised the possibility of further oil price hikes and "economic warfare" among industrial nations that could lead to a drop in output of 4 percent to 5 percent in 1980, followed by more declines in 1981. i
Barring such developments, and the sort of massive business inventory reductions that so worsened the recession of 1974-75, the forecasts clustered around a 1.5 percent drop in Gross National Product for 1980. That would compare with about a 0.5 percent increase in 1979.
Otto Eckstein of Data Resources Inc. said the economy probably would not be going into a recession were it not for the government's fiscal and monetary policies, which have become progressively tighter because of inflation. "We need the recession," Eckstein declared, "because we have double-digit inflation and no other practical alternative for fighting it."
Eckstein expects new housing starts to fall to an annual rate of 1.4 million units by the third quarter of next year, while several of the other forecasters said they thought the figure would be even lower. In the first half of 1979, housing starts were running above the 2 million unit rate.
The long-awaited recession has been delayed thus far by the willingness of consumers to continue to spend even though their real incomes have been declining, several forecasters said.
Alan Greenspan of Townsend-Greenspan & Co. said they have been able to do this because of major gains from selling their homes. Even when they buy a larger, more expensive new home, he said, they end up with a large chunk of cash and have been spending more than half of it.
While the difficulty of getting mortgage money is slowing this process down, Greenspan said, these gains were still running at an annual rate of about $100 billion in the third quarter of this year.
Now, however, mortgage money is so hard to get and so expensive that this source of money will sharply decline, Greenspan said.
Michael Evans of Evans Economics said he expects the Carter administration to propose an antirecession tax cut in March or April after the unemployment rate passes 7 percent.
Most of the other forecasters, including William Cox of the Commerce Department, agreed there would be a tax cut debate during 1980, but most of them thought any cut would not take effect until the beginning of 1981. The most common expectation was for a cut of between $20 billion and $30 billion.
Eckstein said such a cut likely would be "disappointing" to taxpayers, because their Social Security taxes are already scheduled to rise at the beginning of next year.