The nation's economic output plunged 9.1 percent in the second quarter of this year, a rate of decline as bad as any since World War II, the government said yesterday.
Meanwhile, inflation, as measured by an economy-wide index, pushed up to 10.4 percent from 9.5 percent in the first three months of the year.
The economic news will provide fresh ammunition in the election campaign for the newly nominated Republican candidate, Ronald Reagan. He has already accused President Carter of mismanaging the economy.
But administration officials claim that the economy has now turned the corner, and Carter on Thursday attacked as "inflationary" Reagan's proposals for cutting taxes to boost the economy.
There are signs that the recession has started to ease in the last few weeks, but this is unlikely to show up in terms of jobs or pay for several months.
A sharp decline in "real" take-home pay -- after taking inflation into account -- occurred in the second quarter. The economy will not pick up much until this decline is reversed, and people have more money to spend, according to the Commerce Department's chief economist, Courtenay M. Slater.
The nation's gross national product is "almost surely" still declining in the current quarter, Slater told reporters yesterday. As unemployment changes usually lag behind changes in production, the jobless tally is expected to go on rising for the rest of the year.
Slater said she saw unemployment topping off at 8.5 to 9 percent. This is in line with the figure given earlier this week by Charles Schulte, chairman of the president's Council of Economic Advisers. He predicted that the economy would begin to recover from recession soon, but that it would be a slow recovery.
Yesterday's figures were the preliminary estimates from the Commerce Department of gross national product for the second quarter of the year.
The administration's forecasts of how the economy is expected to perform for the rest of this year and next year will be sent to Congress on Monday.
The slump in autos and housing accounted for almost all of the second quarter decline, Slater said.
Economists and administration officials believe that the auto and housing markets have now bottomed out. Alan Greenspan, chief economic adviser in the Ford administration and now president of Townsend-greenspan & Co., commented yesterday that he expects the economy to fall at only half the second quarter rate in the current three months.
Slater said yesterday "by the end of the quarter [June] the sequence of events necessary to produce an end to the recession seemed to have begun." However, she was cautious about how strongly the recovery would proceed.
A major factor expected to damp down the economy in the coming months is that real incomes remain depressed.
Real take-home pay dropped at a 5.5 percent annual rate in the second quarter, yesterday's Commerce Department figures showed. Slater commented that "until this decline can be reversed -- through some combination of reduced inflation, employment growth, and tax reduction -- economic growth is likely to be weak, with little or no reduction in unemployment."
Slater repeated the administration view that tax cuts should take place next year. She pointed out that a cut is needed just in order to keep the tax burden from rising because of inflation.
The combination of falling real incomes and a rise in personal savings from 3.7 to 4.7 percent of income led to a big drop in consumer spending during the March-June quarter. Slater commented that as the consumer sector accounts for two-thirds of gross national product it has to "lead everything."
The nation's GNP reached a $2,523.4 billion annual rate in the second quarter. During the first quarter the economy had grown, in "real" terms, at an annual rate of 1.2 percent.
There was a slight slowdown in price rises for consumer goods other than energy, from 10.7 percent annual rate to 9.7 percent, while energy price rises slowed from 25 percent annual rate to 23 percent.