Recovery is practically upon us, but it may be modest
Make way for the recovery!
Economists differ on just where it is. The dean of business cycle experts, Dr. Geoffrey H. Moore, says the upturn should arrive this summer, perhaps July. Allan Gutheim, an economist with Wharton Econometric Forecasting Associates, maintains the economy has hit bottom already. Citibank's top economist, Leif Olsen, figures the recovery will start this month or next.
Such attempts to pinpoint the recovery are something of a guessing game. Economics is not that precise a science to permit exact predictions.
Whatever, there's a growing consensus among economists that when the recovery does come, it will sneak in on tiptoe. Its arrival may be trumpeted by business writers. But the recovery will not be a boisterous, rambunctious upturn. Rather, it could be weaker and quieter than usual.
Says Peter Crawford in Citibank's monthly tape, Sound of the Economy: ''. . . the recovery is likely to be moderate and quite uneven. Most businessmen will say, as they said in the initial stages of the 1971-72 recovery, that they do not see any pickup at all. And in some areas, capital goods for example, the decline will continue for some time, possibly through the end of this year.''
What the nation faces, he says, is two or three years of moderate recovery. Manufacturers will be using such a low proportion of their capacity that there will be ''sustained, downward pressures on profit margins.'' This proportion could remain, as late as 1984, lower than that last summer, on the eve of the current recession. Businessmen will be disappointed in the growth in profits. It will be a period of ''profitless prosperity,'' Mr. Crawford said, reviving a 19 th-century phrase.
Citibank forecasts that real gross national product (GNP) -- the output of goods and services after removing the effect of inflation -- will likely rise at an average annual rate in the next year to 18 months of ''something like 4 percent.'' That's about 1 percent faster than the usual growth in productive capacity in the United States. It is far below the 5 to 6 percent average rate of growth in the first three years after the 1974-75 recession.
Economic consultant Otto Eckstein, president of Data Resources Inc. (DRI), Lexington, Mass., agrees on the slowness of the recovery. He predicts real GNP growth of 3.4 percent in 1983 and 4.1 percent in 1984.
The basic reason given for the less-than-robust recovery is the assumption that the Federal Reserve System will continue on its current path of monetary restraint. ''Too many sectors [of the economy] will still be suffering from the interest rate blues,'' states H. Erich Heinemann, an economist with Morgan Stanley & Co.
The Fed's objective is to permit money (M-1) -- the fuel for the economy -- to expand at a 5.5 percent annual growth rate from the fourth quarter of 1981 to the fourth quarter of 1982, and then lower this target gradually in succeeding years.
Assuming that the velocity of money, that is, how often it changes hands, rises a normal 3 percent a year, then the 5.5 percent monetary expansion would accommodate a growth in nominal national income of about 8.5 percent through next spring. If the rate of inflation measured by the broadest index, known as the implicit GNP deflator, runs at 7 percent, there is only 1.5 percent left over for real growth. ''Such a low growth,'' Mr. Heinemann notes, ''would be quite extraordinary for the period immediately following a recession.''
But, he adds, if the deflator decelerates to 5 percent, then there would be room for 3.5 percent real income expansion -- a happier picture.
Picking a recovery date is not easy. Dr. Moore, director of the Center for International Business Cycle Research at Rutgers University, has been looking at the ''growth rate'' of the leading economic indicators. These indicators -- a series of statistics in such areas as job vacancies, capacity utilization, new and unfilled orders, stock prices, etc. -- typically reach their trough and start to turn up earlier than the business recovery.
Last week the Department of Commerce announced that the indicators dropped for the 11th straight month in March. The rate of change was -9.7 percent, he said. So, using an average lag from past cyclical experience, he guesses this summer for the upturn.
But that is only an average. On occasion, past recoveries have started at the same time as the cyclical indicators turned around. So past experience could allow an upturn this month or next.
Other economists cite other positive reasons for an imminent pickup in the economy.
Citibank notes that housing starts inched up 2.5 percent to a 950,000 unit annual rate in March, the fifth consecutive monthly gain. Wharton holds that the most important factor is the behavior of inventories. In constant 1972 dollars, they declined at a surprisingly large $17.5 billion annual rate in the first quarter. This, the forecasting group reckons, is a ''good sign'' for the future, since it should mean inventory restocking soon. DRI's Otto Eckstein is counting on a pickup in consumer spending, particularly after the 10 percent tax cut at midyear, to boost the economy.
Further, stock market prices, one of the most reliable of all leading indicators, have been looking up since mid-March. Make way!