The Reagan administration yesterday officially revised its economic forecast for 1983 to show a significantly faster recovery from the recession and less inflation than it had predicted only two months ago.
The gross national product, adjusted for inflation, is now expected to rise 4.7 percent between the fourth quarter of 1982 and the fourth quarter of this year, instead of the 3.1 percent originally predicted. Inflation is now estimated at 4.5 percent instead of 5.6 percent.
Council of Economic Advisers Chairman Martin Feldstein said the faster recovery should mean there will be about 500,000 additional jobs available a year from now, compared to the earlier forecast. The civilian unemployment rate, which was 10.4 percent in February, should drop below 10 percent before the end of this year, he said.
Even at 4.7 percent, the current recovery would be about 2 percentage points slower than the average for most post-World War II recoveries following recessions. With the slower growth, which administration officials have said will be a factor in keeping inflation from reaccelerating, unemployment will not fall as rapidly as in other recoveries.
The new figures represented a compromise between economists at the CEA on the one hand and those at the Treasury Department and the Office of Management and Budget on the other. Feldstein, who had argued forcefully for the lower forecast when it was agreed upon in December, reportedly preferred increasing it only to show about a 4 percent expansion this year. Officials from the other agencies urged predicting about 5.5 percent growth.
"In the end, we were all quite comfortable about the forecast," Feldstein told reporters yesterday.
The revised forecast places the administration more or less in the middle of the range of predictions being made by private economists.
Feldstein, stressing the uncertainties surrounding any forecast, defended the earlier numbers as appropriate at the time. Now the administration has the "extra information" that the recovery began in January and that real output is rising at about a 4 percent seasonally adjusted annual rate this quarter. In addition, oil prices have dropped more than expected, which should help bolster economic growth.
"Remember that forecast had to be completed in the week or so before Christmas," the CEA chairman said. "At that point, although there were many signs of recovery in the offing, and we forecast a recovery, there was no actual upturn in hand as recently as the end of January when we made those numbers public.
"The most recent figures at that time still showed unemployment rising, still showed employment declining. It was only in early February that we began to get evidence for January that showed the significant turnaround . . . ," he said.
Making a 4.7 percent growth forecast then would have been "adventurous," he said. "We would have looked smarter now and I would have slept less well" in the meantime.
The faster growth should reduce the fiscal 1984 federal budget deficit by roughly $10 billion from the $189 billion original estimate, Feldstein said. The impact of the new forecast and of other changes, such as passage of the $4.6 billion jobs bill signed by President Reagan this week, will be included in a set of revised budget estimates to be sent to Congress April 11.
One reason for updating the forecast, Feldstein said, was to counter suggestions that a faster recovery would ease the problem of large budget deficits quickly and substantially. "The same budget policies are appropriate now," he declared.
The administration economists remain convinced that the second half of the year will see a strong economic expansion, but Feldstein agreed that there is substantial uncertainty about what will happen in the April-May quarter. Data for February and recent weeks indicates growth is not as strong as it was earlier in the year, and some private forecasters expect real growth to slow to a 1 percent to 2 percent rate in the second quarter.
"That is less likely than more of a status quo" with real output continuing to rise at a 4 percent rate, Feldstein said. But even if the second quarter is that strong, achieving 4.7 percent growth this year will require an acceleration of the recovery after midyear.
In the short run, the pace of the recovery will depend upon how quickly the reduction in business inventories comes to an end, Feldstein said. Beyond that, increases in consumer spending will be the key.