The Reagan administration's official economic forecast envisions so slow a recovery that unemployment will rise past 11 percent in the next several months and average 10.9 percent for all this year.
It is 10.8 percent now.
The forecast figures, substantially higher than any acknowledged previously by administration officials, were disclosed yesterday by Treasury Secretary Donald T. Regan.
In his State of the Union message Tuesday night, President Reagan said, "America is on the mend," and proposed a four-part plan to reduce future budget deficits and stimulate growth.
With enactment of that plan, the forecast sees growth picking up later this year and running at an annual rate of about 4 percent for the next several years. But even assuming these rates are attained, the forecast shows unemployment averaging 10 percent in 1984 and hanging at about 9.6 percent on Election Day that fall.
Last month's 10.8-percent unemployment rate was a post-World War II record. Longer-term administration projections show it falling to 6.5 percent only in 1988.
On the inflation side, the forecast has the consumer price index rising 4.9 percent over the course of this year, up from the 3.9-percent increase during 1982. Inflation is supposed to fall again in 1984, to a 4.4-percent rate.
The administration's forecast also shows little further decline in short-term interest rates. Three-month Treasury bills are expected to average between 7.8 percent and 8 percent over the next two years, about the same as in recent weeks.
Regan, testifying before the Joint Economic Committee, said that the long-awaited recovery already may have begun. But he warned that it can be sustained only if long-term interest rates fall to "single-digit" levels.
That would mean at least a 1-percentage-point drop in rates on Treasury bonds and at least a 2-percentage-point decline in corporate bond rates.
Such declines might be possible without a simultaneous fall in short-term rates, because the spread between long- and short-term rates is unusually large at the moment. But financial analysts are skeptical whether long-term rates will drop as long as the economy appears to be recovering and federal borrowing to finance huge deficits continues.
It is up to the Federal Reserve Board, Regan added, to walk "a very fine line" between supplying "enough money to get the recovery going and keep interest rates coming down" and putting in so much money that inflation revives.
Regan made the forecast figures available to reporters following the committee hearing, at which both Republican and Democratic members questioned whether the forecast was overly pessimistic. The Treasury secretary defended it, telling Sen. Paul Sarbanes (D-Md.) at one point that it is "not a low-ball" prediction.
Regan emphasized that the forecast calls for a weaker recovery than those that have followed most postwar recessions. But he cited several "good reasons" for this, including a deteriorating trade balance, persistently high long-term interest rates compared with inflation, and structural changes in the economy.
"Some of our industries may not quickly regain the vitality they experienced in the 1950s and 1960s," he said.
In contrast to the complaints from his colleagues, Sen. William Proxmire (D-Wis.) called the predictions "one of the most realistic forecasts I have seen."
Several committee members also questioned the wisdom of President Reagan's proposed 1986 tax increases, which would take effect only if a variety of conditions were met. One condition is that it appear in mid-1985 that the fiscal 1986 budget deficit will exceed 2.5 percent of the gross national product.
"We know we have to get the deficits down," Regan responded, and "we have to have a credible stance" on this point.
If the economy performs in line with the official economic forecast, the 1986 deficit would be $148 billion, substantially greater than 2.5 percent of GNP, even if all the president's recommended spending cuts are enacted and his contemplated standby income tax surcharge and $5-a-barrel tax on oil are in force.
"If we get a recovery more vigorous than we expect, then we will not need more taxes," Regan said. But too many people do not believe such rapid growth will occur, and thus the standby taxes are needed, he argued. "At this point, people would like more reassurance that [lower deficits] will happen," he said.