President Reagan acknowledged yesterday for the first time that the U.S. economy is in a recession.
"I think there's a slight recession, and I hope a short recession," Reagan said on the White House lawn before leaving to meet French President Francois Mitterrand in Williamsburg. "I think everyone agrees on that."
Administration economists, while agreeing the economy is weak, have been reluctant to say that it is in a recession. As recently as Saturday, White House spokesman David Gergen was still arguing that it was too soon to say whether the weakness adds up to a recession.
After Reagan's unexpected concession, Murray L. Weidenbaum, chairman of the president's Council of Economic Advisers, went along. "The economy has entered what can be called a recession," he said. "We have anticipated for some time that this situation could arise. Our mid-July forecast for an unemployment rate of 7.7 percent makes that clear."
Weidenbaum added, "With the first stage of the tax cuts for individuals and business already in place, and with both short- and long-term interest rates declining, forces are already in motion to reverse current downward tendencies, even though several more months of poor economic statistics are a likely probability."
A recession, to economists, implies a significant decline in economic activity that lasts for a substantial period of time and affects most of the economy, not just one or two sectors.
The automobile and housing industries have been severely depressed for months, and that weakness has begun to spread to other parts of the economy. A growing number of forecasters expects the slump to continue until sometime in the first half of next year.
The Commerce Department will release preliminary estimates for the third quarter gross national product later this week. After adjustment for inflation, those numbers are expected by most analysts to show a decline in real output at a 1 percent or 2 percent annual rate. Real GNP also fell in the second quarter at a 1.6 percent annual rate.
High interest rates--the result of the efforts by the Federal Reserve Board to slow the growth of the money supply to reduce inflation--are blamed by economists for the slide into recession.
Administration officials have no plans to change economic policies in order to counter the recession. However, several of them, including Reagan during a meeting with editors Friday, have urged the Fed to try to boost money growth to get it back into the target range the central bank set.
Jerry Jordan, another member of the Council of Economic Advisers, also stressed that no policy moves are on tap. "If we had done nothing in terms of economic policy, we might want to be proposing some tax cuts, but our policy has already been enacted," Jordan said. "Now we are waiting for the lags to work themselves through.
Jordan, who last week said the unemployment rate could climb above 8 percent early next year, said the administration has no fear of a "cumulative decline," and he added, "The problem for the next three to six months is to remember the inherent resiliency of the economy and to resist the temptation to say this is different from what we expected and therefore think we have to do something different with policy. I don't think that's in the cards."
The high level of interest rates has made mortgage money scarce and extremely costly. As a result, starts of new single-family homes in August were at their lowest level since the Commerce Department began keeping the figures in 1959. Now related industries--lumber, appliances, plumbing and furniture--are feeling the pinch.
Similarly, the slow pace of auto sales, which for domestic makes in the first 10 days of October were at their lowest level for the period since 1957, has forced the auto manufacturers to cut production schedules sharply. That in turn has meant a drop in orders for other industries ranging from textiles to steel.