REMEMBER those who kept saying, ``There are no signs of recession?'' With estimates of gross national product (the measure of goods and services produced) settling down, it is now apparent the United States economy was in a growth-recession in fourth-quarter 1989 and first-quarter 1990. That is, gains in the economy were so small they fell short of achieving ``normal'' growth. Growth-recession is not outright recession but, more often than not, leads to one.
At this moment, however, when optimism has turned to concern, the economy is making real efforts to avoid falling into recession.
During 1989, there were numerous negative signs from economic measures that usually precede trouble in the overall economy. Weaknesses appeared in sensitive prices, unfilled orders, durable goods new orders, initial unemployment claims, the deflated M2 money supply (currency and small-denomination deposits), housing permits, and a little-known indicator of vendor performance.
Other signs of trouble had appeared. The prime interest rate had soared to 11.5 percent early in 1989; the rate of rise in unit labor costs accelerated; the ratio of inventory to sales rose, and commercial and industrial loans accelerated.
Those whose attention is focused on the major measures of the overall economy, especially employment and GNP, kept reiterating their comments on the strength of the economy and the seventh year of an economic upswing. There was concern over the future of the economy, but the hope was for a ``soft landing.''
Even as we have experienced a soft landing, we seldom hear that term mentioned anymore. The general question now is, how long will the economy be mired in a state of minor growth?
But just as the fourth-quarter 1989 and first-quarter 1990 growth-recession followed the economic indicators mentioned above, changes have occurred in those indicators.
Housing permits, the money supply, and unfilled orders improved toward the end of 1989. Vendor performance, the average workweek, sensitive prices, durable goods new orders, and initial unemployment claims ceased weakening or improved in 1990.
The prime interest rate fell later in 1989 and early 1990; unit labor costs stopped accelerating in late 1989 and in 1990. The ratio of inventories to sales stopped rising after mid-1989; commercial and industrial loans showed some hesitancy in late 1989 or early 1990, and the ratio of installment debt to personal income has dropped since mid-1989.
These changes both moderated the weakness in the overall economy and raised the promise of the economy taking off again after the soft landing.
Emphasis on production and employment and GNP right now is misplaced. Their behavior is the aftermath of earlier economic conditions, not the precursor of things to come.
What is going to happen is based on how true the stiffening is among these economic measures whose earlier weaknesses led to the present hesitancy in the economy.
Those fearful of recession call for lower interest rates. But we have had lower rates. The prime rate has fallen from 11.5 percent to 10.0 percent, and the Federal Reserve eased rates a bit further on Friday. The leveling-off of the prime rate at 10 percent during 1990 could be suggesting the economy is firming prior to taking off and still lower rates are not needed.
Some are afraid of reducing the federal deficit. But lowering the deficit has always led to a recovery in the economy; it is a worsening deficit that has led to recession.
The thrust toward recession generally has been stopped, but the danger is one of the economy's failing to follow through on a recovery.
Yes, the economy is trying to emerge from a growth-recession. There are encouraging signs. There are also signs, though fewer, of trouble persisting and possibly bringing the economy down.
Housing permits are in a depression. After stiffening in much of 1989 and soaring upward in January 1990, permits have plummeted to a seven-year low. The deflated M2 money supply has weakened lately. Initial unemployment claims have stopped improving.
The average workweek surely is as high as it is going to go. Plant and equipment contracts have fallen off in 1990. Commercial and industrial loans have started up once again. The increases look more like those necessary to keep businesses afloat than they do for inspiring new growth.
The auto industry is looking ahead to a September strike-threat and could exaggerate its production. Strike or no strike, prospects after September do appear good. But if the economy's stiffening is no more than a temporary, tentative state of affairs, the country may yet fail to emerge from its growth-recession.