The Reagan administration, acknowledging the sharp slowing of the economy in the first half of the year, has lowered its forecast for economic growth in 1985 from 3.9 percent to 3 percent, officials said yesterday.
Even the new forecast assumes the economy will snap back in the second half and grow at a 5 percent rate after managing a scant 1 percent rate in the first six months. Most private forecasters, while expecting the economy to improve, predict the gains will be smaller than those the administration expects.
And if the economy does rebound in coming months, the slower than expected growth that already has occurred still will mean about a $15 billion increase in the fiscal 1986 budget deficit compared with what it otherwise would be, the officials said.
The administration officials acknowledged that there is little evidence so far of the predicted resurgence. The forecast, they said, is based primarily on the expected impact of the very rapid expansion of the money supply and a roughly 3 percentage point decline in short-term interest rates in recent months.
The pickup in growth to a 5 percent rate will be shown in the administration's midyear update of the economic forecast and budget outlook, now postponed until next month because of delays in passage of a congressional budget resolution.
The administration left its forecasts of economic growth for later years unchanged at about 4 percent a year. The last update of the Reagan forecast in April showed a 3.9 percent increase in real gross national product between the fourth quarter of 1984 and the fourth quarter of this year. But real GNP rose at only a 0.3 percent rate in the first quarter and a 1.7 percent rate in the second, necessitating the downward revision from the earlier forecast.
The administration plans to make little change in its forecast that consumer prices will go up 3.7 percent this year. The slower GNP growth will mean a small increase in the average unemployment rate to above 7 percent, the officials said.
Most private forecasters also predict economic activity will speed up in the second half of the year, though so far there are few concrete signs of it. However, only a few private economists believe growth will hit 5 percent. Most suggest it is more likely to be somewhere between 2 percent and 4 percent.
Another small group expects the economy actually will begin to contract, with the nation falling into another recession.
Federal Reserve Chairman Paul A. Volcker said last week that Fed policy makers believe the economy will expand at a 4 percent rate in the second half.
Administration economists are counting on gains in housing, business investment in plants and equipment and in defense spending to give the economy the boost they are predicting. Consumer spending, which has remained relatively strong, is not expected to increase more rapidly than it has been.
The actual level of the 1986 deficit also will be affected by other factors, including the outcome of the current budget debate on Capitol Hill.
The deficit for fiscal 1985, which ends Sept. 30, also has been affected by the slower growth, primarily through reduced revenue. While spending for a number of programs, including national defense, is running below earlier projections, that has been offset by the effects of the economic slump.
As a result, the current estimate for the 1985 deficit is about the same as the $213.3 billion shown in the April update, officials said.
The recent decline in interest rates also has lowered the current cost of financing the national debt compared with the April figures, but not by a significant amount, they said.
Meanwhile, the Labor Department reported yesterday that productivity at American businesses other than farms rose at a 0.5 percent annual rate in the second quarter, reversing only a portion of a large drop that had occurred in the first quarter.
The second-quarter rise still left non-farm productivity 0.4 percent lower than it was in the same quarter of 1984 and the prospect for future gains uncertain. The administration expects productivity improvements to get back on a higher track as overall economic growth picks up.
The second-quarter gain in productivity -- that is, output per hour worked -- at non-farm businesses came as a result of a modest 1.9 percent rate of increase in output and a smaller 1.4 percent rise in the number of hours worked. In the first quarter, productivity earlier was reported as falling at a 2.5 percent rate, but with downward revisions in GNP estimates, that figure now shows a larger 3.1 percent rate of decline, the Labor Department said.
In manufacturing, hard hit by foreign competition and a swelling trade deficit, so many workers were laid off that the number of hours worked fell at a 4.7 percent rate. Output nevertheless rose at a 2.5 percent pace, with the result that productivity shot up at a 7.5 percent rate.
The gain from the April-June quarter of 1984 in manufacturing was 3.5 percent, compared with a 0.4 percent drop among non-farm businesses as a whole.
Compensation paid by non-farm businesses rose at a 3.4 percent rate in the quarter, down from a 5 percent rate in the first quarter. On a year-over-year basis, compensation has been rising at 4 percent or so for more than a year.
Compensation paid in the manufacturing sector, which in 1983 and much of 1984 rose less rapidly than in non-manufacturing sectors, is now going up faster. It climbed at a 5.6 percent rate in the first quarter and a 4.7 percent rate in the second, the department said.