Recession's End Remains Just Around the Corner
Experts disagree sharply on timing, strength of uptick
BOSTON — `THE recession is not over until it is over, and not even then.'' That's the catchy way economist Leonard Lempert has of making a point - that even if the United States recession technically ends by the start of summer, as most economists expect, it won't feel like it.
Some economists say the business contraction that started last July has already stopped.
However, even if economic expansion has resumed, the level of business activity will remain low compared to before the recession for many months, perhaps a year or longer.
``The worst of the recession is nowhere near over,'' maintains Mr. Lempert, the director of Statistical Indicator Associates in North Egremont, Mass.
That's because the worst of a recession is its last three or so months. But the level of activity in the first three or so months of recovery is virtually the same as the last three months of the recession.
Deep pessimism voiced
Economists themselves are divided on both when expansion will resume and whether it will be vigorous or weak.
Philip Braverman, an economist with DKB Securities Corporation, is among the relatively few deep pessimists. ``I see no reason to expect, at this juncture, a recovery sooner than the first quarter of 1992,'' he says. ``There are prerequisites to recovery, and they are nowhere in sight.''
The personal savings rate and disposable income are still declining. States and communities are raising taxes and cutting spending. Consumer confidence fell in May for the second consecutive month.
Many businesses still find it hard to get credit for expansion. Interest rates have fallen, but not as much relatively as before previous recoveries, Mr. Braverman adds.
``When the recovery does begin, it is likely to be sluggish and fragile,'' he says.
A contrary view is held by economist John Dessauer. Though reluctant to pinpoint the turnaround in the economy, the publisher of Dessauer's Journal in Orleans, Mass., anticipates a ``mini-boom'' in growth for half a year before the economy returns to a more modest pace. He figures that consumers, having already trimmed their mortgage, credit card, car loan, and other debts, will loosen their purses for a while when their fear of layoffs diminishes. But then high corporate debt levels and troubles in the thrift and banking industries will dampen growth to a 2 or 3 percent annual real rate, restraining inflation and keeping interest rates down, he says.
The Commerce Department released statistics Wednesday indicating that the economy was still shrinking at a 2.6 percent annual rate in the first three months of this year. That was steeper than the 1.6 percent rate of decline in the output of goods and services in the fourth quarter of 1990. After-tax profits of US corporations fell by 5.6 percent in the first quarter, worse than the 1 percent drop in the fourth quarter of last year.
To an economic forecaster, the first quarter is history and this quarter is a forecast. Only some April numbers are available.
No hard evidence of recovery
R. Jeffery Green's econometric model tells him the gross national product will start to grow this month or next, though so far he has seen no hard evidence of recovery. The expansion will be neither dramatic nor robust, says the Indiana University economist.
With credit harder to come by, housing will be ``lackluster.'' Defense spending will be declining, restraining business activity.
But, says Green, more stable oil prices and lower interest rates could result in an overall rate of inflation of 3.8 percent. That compares with 5.5 percent earlier this year and 4.1 percent in 1990.
Raymond Worseck, chief economist of A. G. Edwards & Sons Inc., expects the slump to end in the summer quarter. But he anticipates a shallow recovery partly for demographic reasons. For one thing, he sees a return to more traditional values in society, with more women deciding to stay home with their children rather than working.
``Maybe there's a feeling that all the chasing of greed in the 1980s hasn't produced much satisfaction,'' he says.
Further, the economic thrust from the baby-boomers is past, he notes. Relatively fewer youths are entering the labor force, and thus the demand for first houses and first cars will be reduced.
One brighter forecast
John Mueller is one of the most optimistic economists. Basing his forecasts on the large holdings of US Treasury securities by foreign central banks as well as on the monetary actions of the Federal Reserve System, the chief economist for a Washington consulting group, Lehrman Bell Mueller Canon Inc., says recovery started last month. ``The Federal Reserve no longer sets monetary policy by itself,'' he says. He expects economic growth to run at a 4 percent real annual rate in the third and fourth quarte rs.
By contrast, New York economic consultant Robert Parks doesn't see a recovery until next year. ``This year is lost,'' he says.
``We have yet to see the full impact of restrictive fiscal, credit, and monetary policies.''