Senior administration officials moved immediately yesterday to disavow the rose-colored optimism in the midyear economic review released by the White House, underscoring their growing concern about the future of the economy.
Asked for his own candid assessment of where the economy was headed, the senior official briefing reporters on the new White Houseforecast said, "I think it's kind of in a twilight zone." Asked what he meant by that, he quipped, "It's either going to be morning or night."
Later, he added, "We have no firm notion of where the economy is going."
Despite the report's optimistic predictions of lower interest rates, a drop in unemployment and a "significant economic recovery" by the end of the year, there is detectable anxiety and uncertainty in the White House about the fate of the economy and its impact on Republican political fortunes in the elections Nov. 2.
President Reagan himself reflected some of that concern at his press conference Wednesday night. In a dramatic turnaround, Reagan appealed to the nation for patience and forebearance, clearly indicating that the road to recovery would be much longer and harder than he had previously promised.
But Reagan also signaled his intention, spelled out in the economic and budget forecast released yesterday, to raise military spending in future years to levels higher than he had agreed upon with Congress and to cut more deeply into social spending. This created a firestorm on Capitol Hill and reopened the debate between Congress and the White House over national priorities.
This guns-butter debate has also raged in the administration among Reagan's top aides and Cabinet officers. Another senior administration official said yesterday that, despite the new report's reflection of victory for now by defense spending advocates led by Defense Secretary Caspar W. Weinberger, this debate among the president's men would more than likely continue.
"The situation is still fluid," the official said. Although Weinberger got the green light from Reagan to prepare a fiscal 1984 military budget with the higher spending levels, the official said he was certain those numbers would be reconsidered later in response to the economic situation and the reaction on Capitol Hill before they are formally presented to Congress next year.
The senior official disputed Hill charges that Reagan had reneged on his deal with Congress. He said Reagan "very reluctantly" had agreed to $20 billion in tax increases in next year's budget but that the package approved by the Senate Finance Committee was $4 billion higher.
There was still considerable exasperation with Reagan over defense spending on the Hill yesterday, which was fueled by the White House midyear economic review.
Sen. Ernest F. Hollings (D-S.C.) called the new report "political nonsense" and added, "the deficits keep getting bigger and Reagan keeps putting out false reports."
Speaking of the economic outlook, Hollings said, "The so-called light at the end of the tunnel is a train coming down the other track."
On the flap over defense spending, Hollings said, "I think Reagan has definitely reneged on the understanding" and caused deep divisions in Republican ranks.
However, Senate Armed Services Committee Chairman John G. Tower (R-Tex.) said he thought Republicans would suffer no trouble "over the long pull" and parted company with Republican colleagues, including Sen. Majority Leader Howard H. Baker Jr. (R-Tenn.), who have criticized Reagan's stand on defense spending.
Yesterday, Baker, speaking about the midyear review, said Reagan's budget projections seem "to have a half-life of 30 days."
The senior official briefing reporters on the review said it was an "admittedly arbitrary" exercise. He conceded that the economic assumptions, out-of-date forecasts by the Congressional Budget Office, were unrealistic.
He said they were the same ones used when the first congressional budget resolution was framed and that the Reagan administration had decided not to change them at a time when Congress is still in the midst of deliberations on the budget and taxes because such changes "drive those people crazy on the Hill." Use of the old data also spares the Reagan White House from being tagged with new, more pessimistic forecasts on the eve of the fall's campaigns.
In a breakfast meeting with reporters yesterday, Reagan pollster Richard Wirthlin conceded that an increase in unemployment or a new round of inflation, as many fear, would hurt Reagan and GOP candidates this fall.
Wirthlin was generally hopeful about prospects, saying that Reagan benefits from a "pool of patience" because people blamed Jimmy Carter and the Democrats for current economic troubles by wide margins.
But worsening of the economy would be harmful, he said.
"Republicans and this president are viewed as not as helpful to the less fortunate" as are Democrats.
The senior official briefing reporters predicted more government red ink in fiscal 1983 than the $115 billion deficit that is being forecast, which, he said, was low.
"I think it's probably going to be considerably higher."
Of the future of the economy, he said, the downturn in inflation, government spending and the increase in real wages were positive signs. Negatives include the decline in capital spending and high rates of interest.
But, he said, "The budget picture has been deteriorating monthly in terms of economic assumptions ever since August or July of last year."