Reagan on economy: frankness, hint of compromise
Washington — With a few words as he boarded a helicopter, President Reagan has created what a top White House aide calls a ''much more straightforward atmosphere'' in which to discuss the US economy.
Conceding that the economy is in recession - albeit he hopes a ''slight and short'' one - Mr. Reagan has cleared the decks for his advisers to speak out more candidly on what the future may bring.
So far, said Murray L. Weidenbaum in a telephone interview, the White House is sticking with its economic forecast issued in mid-July, before the economic slowdown was as clearly evident as it is today.
That forecast - more optimistic than congressional and private estimates - anticipated a 1982 budget deficit of $42.5 billion. It has since been slightly amended by the White House to $43.1 billion.
A recession, even a short and mild one, tends to swell the budget deficit by reducing tax revenues and boosting government outlays for unemployment compensation and related costs.
For many weeks congressional and private forecasters have said that the 1982 shortfall would balloon to $60 billion or more, given the economic slowdown. Economists Walter W. Heller and George L. Perry, in a just-released survey, foresee a possible 1982 budget deficit in the $75 billion range.
''It really depends,'' says Mr. Weidenbaum, chairman of the Council of Economic Advisers (CEA), ''on the speed, timing, and extent of next year's recovery.''
A solid recovery, he said in a telephone interview, could jack up the economy sufficiently to wipe out the effects of recession and make the President's budget goal possible. A slow recovery, on the other hand, might validate non-White House predictions of a budget shortfall running much higher than $43.1 billion.
Mr. Reagan's mention of recession, says another senior White House official, ''prepares the ground for an acknowledgment that the budget deficit may be higher than expected.''
''But,'' says the official, ''a deficit widened because of a revenue shortfall'' should not, in his view, be interpreted as a defeat for President Reagan's economic program.
The economy grew at a brisk 8.6 percent annual rate in the first quarter of 1981, then plummeted to a 1.6 percent decline in the April-June quarter. Third quarter figures, due to be released Oct. 21, are expected to show a further slight drop in the nation's total output of goods and services, called the gross national product (GNP). Experts now anticipate another decline in the fourth quarter, extending into early 1982.
A drop in industrial production last month, growing inventories of unsold goods, rising unemployment, and falling after-tax corporate profits are among signs that a recession is under way. These supplement a longtime slump in the housing market and sales of US-built cars, two industries especially hurt by high interest rates.
Apart from its impact on the budget, the current recession is likely to impart good and bad effects. On the negative side, the jobless rate - now 7.5 percent of the work force - is expected to climb, possibly above 8 percent by early next year.
The mid-July White House estimate of an average 7.3 percent unemployment rate for 1982 now appears optimistic. Also unduly optimistic, according to many economists, is the White House projection of a 3.4 percent GNP growth rate in 1982. Messrs. Heller and Perry put the likely gain in the 1.5 to 2.5 percent range.
White House officials acknowledge that a ''mid-course correction'' in forecast numbers, if not in policy, may have to be made during the fall.
On the bright side, both inflation and interest rates should drop in the slack economy expected over the next few months.
''A weak economy,'' according to Heller and Perry, ''will reduce interest rates and help slow inflation in the near term, even as it expands the budget deficit well beyond official projections.''
For the average citizen - apart from those who lose their jobs - the recession may bring some benefits, notably a slower rise in retail prices and lower interest rates. These conditions, which eventually could spur consumer buying and business investment, should lay the groundwork for economic expansion sometime next year.
Recession also may have a moderating effect on wage demands by trade union leaders in the major bargaining year of 1982. This, too, would help to restrain inflation.