End of US Recession Seen In Mid 1991 - or Last Month
WHEN will the recession in the United States end? ``I wrote it down in my diary here,'' says Nicholas Perna, chief economist of Shawmut National Corporation. ``It will be Thursday, June 20. I don't know whether it will be a.m. or p.m.''
Mr. Perna, of course, is joking. He's fully aware that economists have enormous difficulty predicting turns in the business cycle with any precision.
Nonetheless, business economists are paid to stick their necks out, and most are still anticipating a turnaround by midyear. In a survey early this month by Blue Chip Economic Indicators in Sedona, Ariz., of some 50 prominent economic forecasters, seven of 10 of those responding said the recession will hit bottom in April, May, or June. Thirteen percent said they believe March eventually will be recorded as the month in which the recession ended.
Perna says, ``All the numbers I see out there are behaving perfectly consistent with the recession being over in a couple of months.'' He mentions the upturn in housing starts, higher stock prices, improved consumer expectations after the end of the Gulf war, and an increase in the United States Department of Commerce's index of leading indicators. A ``lagging'' indicator - unemployment - could rise for another month or two, he adds.
Roger Brinner, chief economist of DRI/McGraw Hill, a Lexington, Mass. consulting firm, agrees. ```The end' is ... in sight,'' he writes. But he expects variations in the recovery between industries and regions: ``The recession did not begin uniformly and it will not end evenly.''
Housing and auto sales, he says, are leading the recovery after hitting a trough in January. ``Most retail goods and private residential construction should trend higher after February or March, pulling up manufacturing output from April onward.''
Consumers, he notes, told pollsters in March that they plan to resume buying cars, homes, and appliances. And there is anecdotal evidence of heavy traffic in auto showrooms and real estate offices.
However, the improvement in consumer confidence does not appear to have brought the economy to its feet immediately, as some economists had forecast.
There's a very low correlation between consumer expectations and an upturn in consumer spending, says A. Gary Shilling, an economic consultant.
Any recovery in consumer spending is ``surprisingly modest,'' says Fred Breimyer, president of the New England Economic Project. More pessimistic than most economists, he figures the economy declined at a 3 percent annual rate in the first quarter of 1991 and will fall at a 1.5 to 2 percent rate in the second quarter, before recovering in the third quarter. That would make the recession, which started last summer, a year in duration.
Philip Braverman, chief economist of DKB Securities Corporation, New York, says a recovery is possible by midyear - ``but improbable.'' He holds that the Federal Reserve System must and will do more to lower interest rates to encourage lending by commercial banks and borrowing by consumers and business owners.
In previous recessions, the Fed cut the federal funds rate - the interest that banks charge one another on overnight loans - by more than 50 percent from its previous peak. The low point in the rate, after inflation, was zero or even negative. But federal fund rates in this slump have not fallen as much, he notes.
LIKE some other economists, Mr. Braverman is concerned that the combination of a build-up in debts in the 1980s as a result of leveraged buyouts, excessive real estate loans, and other speculation; tax increases; and regulatory pressures on banks to improve their capital base while making loans only to better credit risks, will delay recovery. These factors make this recession different from earlier slumps, when swings in business inventories were important, he says.
``The credit crunch is without precedent in the postwar period,'' he says.
Dr. Shilling worries about a false start to the recovery - or as others have described the possibility, ``a double-dip recession.'' That, he says, would result from the financial excesses of the 1980s. Something similar happened in the Great Depression, he says, when the economy turned up briefly for two quarters in 1931.
David Ranson, president of H. C. Wainwright & Co., Economics, an investment and economic research firm in Boston, says the decline in interest rates that began in March 1989 means a recovery is ``overdue.'' However, he cautions that such a turn ``is never clear when you are close to the event.'' Only the publication of revised statistics months later enable economists to pinpoint the month when recovery began.