US recession: Not so short, not so mild?

By , Staff correspondent of The Christian Science Monitor

Now that the US economy clearly has slid into recession, questions arise of great moment to almost all Americans: * Will the downturn rival the steep recession of 1974-75, or will it be "short and mild," as President Carter predicts?

* How many Americans will lose their jobs, as hard-hit sectors -- housing, autos, and others -- send ripples of layoffs out to related industries?

* Will Mr. Carter and Congress be diverted from the fight against inflation, as they try to cope with recession?

Recommended: Recession in America? 10 questions assessing the threat.

One sure thing is that unemployment will creep up, with White House inflation fighter Alfred E. Kahn foreseeing a possible 8 percent rate by early next year.

Every 0.1 percent increase in the jobless rate, says Deputy Budget Director John White, costs the US Treasury $200 million in unemployment compensation and social payments.

Added to this is a drop in income tax receipts, so that the total burden on the economy of every 0.1 percent rise in unemployment may come to $250-$300 million.

This implies, if 8 percent of Americans are jobless, an additional outflow from the US Treasury next year of $3.6 billion, attributable to recession.

There is little the White House can do about this, for payments to the jobless and others in distress are mandated by law.

The question then arises: Will Congress and the President go further, and pump discretionary spending -- not required by law --recession?

So far the Mr. Carter and Democratic congressional leaders insist that their first priority is to balance the 1981 budget, which would rule out additional "anticyclical," or antirecession, outlays.

But if inflation -- now running at 18 percent as measured by the consumer price index -- begins to subside, political pressures will glow to help groups of Americans hurt by recession.

We have "turned the corner" in the fight against inflation, said Mr. Carter at the White House May 1. He sees "sound indications" that inflation will drop "significantly" during the summer.

His forecast, administration officials concede, is based on the expectation that mortgage interest rates will drop (which is likely) and the hope that energy prices will rise no more than 20 percent this year (a decision that belongs to the Organization of PEtroleum Exporting Countries, not to the United States).

Melting away these aspects of the consumer price index, said a key official in an interview, would expose the underlying inflation rate -- now 9 or 10 percent, up from 6 percent not long ago.

This underlying rate, economists agree, must be whittled down, if the nation if is to escape cycles of ever-rising inflation.

As to the severity of the recession, the weight of evidence points increasingly toward a downturn exceeding the "short and mild" definition of President Carter.

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