Recovery could overhaul Washington's priorities

By , Managing Editor of The Christian Science Monitor

Congress will be receiving the President's budget amid growing signs that the recession lies behind us, and a recovery is in its early stages. If that, in fact, is the case, it does not relieve the Congress of making important decisions about future levels of spending and taxation. But it will leave the legislators with less reason to take emergency actions, such as a major jobs bill, to end the most severe period of economic adjustment since the end of World War II.

The evidence of turnaround is fragmentary. But like sailors looking for land they cannot yet see and being greeted by numbers of seagulls, economic analysts scanning the horizon for recovery are becoming more and more convinced by the variety of indicators coming into view.

Last Friday the Commerce Department released the monthly report of leading economic indicators. Up l.5 percent for the month of December, they had the largest monthly rise since a 2.8 percent jump in September l980, and the eighth rise in the last nine months. During the week General Motors also announced the callback of some 2l,000 workers over the next three months; these workers have been on indefinite layoff. Construction contracts rose a strong 7 percent during December as well. And during the latest reporting week, new claims for unemployment insurance dropped significantly.

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One week's statistics do not make a recovery. But these latest numbers follow a trend developing since late last summer, when the Federal Reserve allowed interest rates to fall. New home construction immediately responded as mortgage rates began to inch downward. Car sales have also responded to lower interest rates on loans. Finally, the weak fourth-quarter gross national product (GNP) figure included a major liquidation of inventories, typically the last stage of every postwar US recession. With that behind us, even the same level of final sales would require an increased level of production.

It is no small matter for the economy to have made a turn during midwinter, if that has indeed occurred. A series of better economic statistics in the next few weeks would almost certainly lead to stronger growth once taxpayers begin to get their refunds on l982 income taxes (because of over-withholding by the Treasury since the l0 percent tax cut last July) and additional cash from another tax cut this July. The improving figures would also lift from both the White House and Congress a growing sense of urgency that more had to be attempted in Washington to end this painful period of adjustment.

The nation has been through two recessions since March l980. The first recession ended in six months because of a turnaround in monetary policy. Nevertheless, most Americans have been living with some sense of economic malaise for years, first because of growing inflation in the latter half of the l970's and later from record interest rates and two back-to-back recessions.

With inflation at least temporarily licked, interest rates falling, and the recession behind us, the scene could be set for the more far-reaching aims of the Reagan program - such as a sharp increase in capital spending - to begin taking effect. But there is a big ''if'' here - if Congress and the White House act responsibly.

The budget deficits in prospect are too large to accommodate the rise in private borrowing that accompanies an extended period of economic growth. There still must be compromises on the budget to reduce future levels of spending and probably raise some taxes as well. The compromises will almost certainly include cuts in the President's presently projected levels of defense spending. From the administration's point of view, the latter remains a difficult area to negotiate, as long as the arms reduction talks with the Soviet Union are still in process.

In the fiscal year ended last September, the nation had a budget deficit of l 0 billion. Because the recession reduced private borrowing demands, the market could accommodate the deficit and even allow interest rates to fall. In the current fiscal year, the administration now estimates a deficit in excess of $ 200 billion, and the fiscal l984 budget projects a deficit of 89 billion.

Economic growth could make these numbers appear too pessimistic in retrospect , and the administration has been more careful this time to use economic assumptions drawn from the mainstream of private economic forecasts. It is just possible, however, after so many years ot economic disappointments, that the mainstream itself has become too pessimistic. One study by the Conference Board , a highly regarded economic research group, indicates that every one percent growth in GNP will reduce the deficit by $28 billion. Thus, slightly higher growth than the 2-3 percent now forecast could quickly eliminate a substantial portion of the deficit.

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