Budget director David A. Stockman said yesterday that the Reagan administration will propose further spending cuts if a weakening economy later this year threatens to increase the budget deficit.
Telling reporters that "the economy is in very dicey condition," the lead man in the drive to reduce federal spending vowed that the administration would try to hold the fiscal 1982 deficit beloe $54.5 billion, no matter what the economy's course.
Stockman said that President Reagan would not repeat what he described as the Democrats' mistake of allowing "the budget to become hostage to the economy."
The Office of Management and Budget director also defended the administration's decision last week to hold up further hiring under the CETA public employment program even before Congress acts on the Reagan request to phase it out by Oct. 1.
Stockman said a directive to that effect that went out last week from the Department of Labor was an appropriate step and did not violate the congressional budget act, which for bids executive impoundment of appropriate funds. He said Reagan would formally recommend the phaseout of Comprehensive Employment and Training Act Programs in his budget amendments next week and that "it made no sense to hire more people you'd just have to lay off."
A Labor Department spokesman said early action on CETA might save $900 million in the current year. But John Gunther, executive director of the U.S. Conference of Mayors, said most of those affected by the cutoff would end up on unemployment compensation or welfare rolls, adding, "The president is moving ahead without waiting for Congress to agree to his budget."
The Labor Department directive froze hiring effective yesterday, eight days before Reagan is scheduled to present the Ceta phaseout formally to Congress. Under the budger act, a president may not refuse to spend appropriated funds unless he asks Congress for a rescession or deferral of the appropriation.
Stockman said he was not certain which device Reagan would choose. A recession requires affirmative action by both houses of Congress, but allows the president to freeze funds for 45 days, pending congressional action. A deferral is indefinite in duration, but may be overridden by a majority vote in either the House or Senate.
Looking further ahead, Stockman told a group of reporters that the short-term condition of the economy was "a complicating factor" for Reagan's program in Congress but would not deflect the president from his budget-cutting drive.
The budget director said last fall's tightening in the money supply and the consequent run-up in interest rates had put "a severe short-term squeez on the economy and the effects will be felt in th next few months."
The economic projections underlying Reagan's budget assumed an essentially flat economy in the first half of 1981 with gathering economic strength thereafter as his economic program takes hold. But two consecutive months of decline in the index of leading indicators have led some forecasters to think that may be too optimistic.
Stockman was adamant in insisting that even if that proves to be the case, the administration will hold to its budget goals -- even at the cost of short-circuiting some of the so-called automatic stabilizers in the federeal budget.
As the economy drops into a recession, spending for enemployment benefits and some other programs rises automatically. Similarly, the taxes owed by individuals fall sharply if they are thrown out of work. Corporate taxes decline, too, since profits usually fall during recessions.
A 1 percentage point increase in the average unemployment rate for a year adds about $9 billion to outlays that year. The same slowdown would probably cut federal revenues by $25 billion or more.
This $34 billion combination of higher outlays and lower taxes normally gives the economy a shot in the arm just when it needs it most, during a recession.
Stockman said that if such a trend develops this spring, the Reagan administration would "as a matter of basic policy, look for offsetting economies," rather than accommodate that kind of growth in the deficit. "It may not be a 100 percent offset," he said, "but we would not allow the budget to become hostage to the economy."
Some economists would argue that offsetting this huge swing with budget cuts would remove a necessary stimulus and possibly plung the nation into a more severe downturn. But if one regards the budget deficit as too large to begin with, as Reagan and Stockman do, then a policy of addtional cuts would appear reasonable.
On a related budget issue Sen. Bob Packwood (R-Ore.), chairman of the Senate Commerce Committee, see after a meeting with Reagan yesterday that the administration had decided not to wipe out the Federal Trade Commission's antitrust authority, as propose in an OMB memo to the agency.
Packwood said the original cuts -- 25 percent in fiscal 1982 and more than 40 percent by fiscal 1985 -- will remain, but the agency and Congress can decide how they are absorbed.