‘Recession may be mild but long’

Press, 28 October 1981, Page 26

‘Recession may be mild but long’

PA New York Many Wall Street analysts have said that they share President Reagan’s view that this year's recession in the U.S. will be mild. However, many of them also said the president’s hopes for a short recession may be disappointed. Reagan said last week-end: “I think there’s a slight recession and I hope a short recession.” Analysts at the securities firm of Aubrey G. Lanston and Company, Inc., agreed with this diagnosis. “The U.S. economy appears to be again sinking into recession, little more than a year after the last one ended,” they said. The 1981 recession would be the eighth since 1945. Last year’s recession, which lasted from February to July, was unusually brief though fairly deep. The' Lanston economists added: “early indications are that although the current downturn may be somewhat

less severe than last year’s precipitous drop (because of tax cuts, rising defence spending and still conservative inventory policies) it might last, longer, perhaps well into 1982.” Many analysts said the economic downturn, which now appears to have become more broadly based by spreading from the housing and car industries into other sectors, has further to go. Already the 1.6 per cent shrinkage of the economy in the second quarter and the 0.6 per cent drop in the third quarter together satisfy the rule-of-thumb definition of recession. But the National Bureau of Economic Research is regarded as the final judge. Economists at Manufacturers Hanover Trust said in their weekly “Financial Digest” that the shrinkage in the economy is more ominous than it appears. That is because most of the over-all decline was accounted for by a drop in final

sales, and manufacturer inventories have continued to pile up, the Manufacturers Hanover economists said. Unless a resurgence in consumer spending is seen soon, manufacturers will cut production further to reduce inventories and that would lead to an increase in unemployment. According to the Manufacturers Hanover economists, a pickup in retail sales may be long in coming since consumer confidence appears to have dropped sharply. Moreover, since companies tend to reduce overtime before they start laying workers off, a 2.2 per cent September drop in the average work week in manufacturing industry could be a leading indicator of an increase in unemployment, the economists said. The Aubrey G. Lanston economists cited the broader base of the downturn as evidence that the recession may be more prolonged than its predecessor.