Edging Up to Recession

Somewhat belatedly a top Administration official conceded last week what many private economists have been saying for some time: the nation's output of goods and services is likely to show a decline for all of 1974. Testifying to the Congressional Joint Economic Committee, Kenneth Rush, the President's economic spokesman, predicted that during the year's second half the rate of expansion in real gross national product will probably fall below the 2% to 4% figure that had previously been forecast by the Administration. That would mean a drop in G.N.P. for the entire year. Economic growth has already declined at an annual rate of 4.2% in the first half. Part of the reason for the continuing slowdown is that businessmen are spending less than expected for new plant and equipment.

Herbert Stein, the outgoing chairman of the Council of Economic Advisers, later told the committee that the Administration does not believe that unemployment will exceed 6% during the last half of 1974, but he indicated that it could be higher than that in some months. On the other hand, Walter Heller, CEA chairman under President Kennedy, told the committee that if the Administration sticks to present policies, the jobless rate will probably hit 7% by next year. At week's end, the Labor Department announced that unemployment, after hovering at 5% to 5.2% for six months, had inched up to 5.3% in July.

Stein held out little hope for a substantial abatement in living costs. The best projection he could muster was that perhaps by the end of the year "inflation will be significantly lower than in the first half of the year." Earlier, Administration forecasts had living costs rising at 7% later this year, though most non-Government economists expect them to be higher. Stein's designated successor, Alan Greenspan, expects a high level of inflation this year--and turgid or almost imperceptible growth in the economy next year.

Two for Four? All this raises a politically explosive question: Has the U.S. entered the second inflationary recession in four years under the Nixon Administration? So far, the private National Bureau of Economic Research, the final arbiter in such matters, is suspending judgment. Other experts are less patient. Manhattan's First National City Bank calls the business decline "a pervasive recession." And last week Economist Michael Evans of Chase Econometrics, a forecasting firm owned by Chase Manhattan Bank, declared: "Not only is the recession here, but it will stay with us for the rest of the year."

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