It's no secret: US in recession; But it should be mild and short and may well ease inflation
When the Department of Commerce announces the gross national product (GNP) statistics for the third quater today, it will show the nation in a recession. That's what President Reagan said earlier this week, and he may have had an advance peak at the numbers. That's also what business economists have been predicting. They base their forecasts on recent trends in various components of GNP -that is, the total output of goods and services in the nation.
Every week Mr. Held estimates the key economic numbers that varous government offices will release during the next week. Giving himself some margin for error, he figures he is about 70 percent right. That's a pretty good record.
Further, he reckons that GNP is declining further this quarter -at a 3 percent annual rate. If true, it is almost certain the the National Bureau of Economic Research, which determines the dates of the business cycle, will eventually announce that a recession started last spring or early summer.
Is that alarming news?
No, most economists would say. The stock market has already anticipated the slowdown, and the Dow Jones industrial average declined only 4.56 points Monday. But it is anybody's guess whether stock prices have reached their bottom already or could drop further. In any case, stock prices usually slump before a recession and during the first part of it.
One reason for the lack of excitement is that so far most economists are anticipating a relatively mild recession. Smith Barney's Mr. Held forecasts an average, or slightly less than average, recession.
The current "consensus forecast" -that is, the average of a sizeable number of regular forecasts by economists -has GNP declining 0.8 percent in the third quarter and rising 0.5 percent in the current quarter. But this average -compiled early this month by Blue Chip Economic Indicators (Sedona, Ariz. 86336 ) -might be more negative today, considering the latest statistics, such as a decline in housing starts and a reduction in factory operating rates.
The slowdown, this consensus finds, will boost unemployment to 7.6 percent this quarter and next, before gradually declining to 7.3 percent by the last quarter of 1982. Short-term interest rates should drop to 11.8 percent by that same quarter.
If this view is correct, the United States will not suffer the same economic trauma as that under way in the United Kingdom. But then the US had a milder inflation case to cure than the U.K., where prices were rising briefly at a rate above 20 percent a year.
When the GNP figures come out today, they may also show a marked acceleration in inflation as measured by the GNP deflator, which is the broadest measure of price trends. Citibank of New York suspects that the third-quarter annual rate could be in the double-digit area, compared with 6.4 percent in the second quarter. Mr. Held guesses around 9 percent.
Both forecasters, however, say the acceleration is nothing to be worried about and that inflation will be decelerating again in the following quarters. Citibank explains that a double-digit figure would be a statistical glitch resulting from the way international trade is worked into the GNP calculation. GNP measures domestic production. So imports are subtracted when the calculation is made. When dollar imports are deflated to reach a constant dollar valuation, the effect of changes in import prices on the total GNP deflator is exactly opposite to the direction of change in the import deflator.
In the third quarter, oil import prices plunged, lowering the average price of all imports. The mathematics involved in the calculation mean the deflator could rise substantially. Possible, the Commerce Department's Bureau of Economic Analysis will take account of this. But if it doesn't, don't get excited. Inflation is not coming back in grand style. And the economy is not heading for a depression -just a mild recession.