The Elusive Recovery

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Deficits and interest rates must come down, say TIME's economists

Forecasters scanning the horizon for an economic recovery have begun to feel a bit like Vladimir and Estragon, those frustrated characters in the play Waiting for Godot who keep expecting something that never happens. Now in its 18th month, the recession has been a longer-running and more tragic drama than almost anyone originally predicted. For that reason, the TIME Board of Economists was extraordinarily cautious as it met last week in New York City to survey the outlook for the new year. The economists expect the recovery to begin during the first quarter of 1983, but rarely have they been so uncertain about a forecast.

At best, the upturn will be slow and feeble. The board foresees growth in the gross national product, after adjustment for inflation, of about 3% next year, which would be only half the pace of most past recoveries. Even that modest progress will be in jeopardy unless the White House and Congress take decisive action to boost consumer confidence, lower interest rates and convince the financial markets that alarming federal deficits can be curbed. Said Otto Eckstein, a Harvard professor and chairman of the Data Resources economic consulting firm: "We're all hoping and praying for a recovery, but I'm afraid the Government is not prepared to do much to ensure it."

In describing current conditions, the board members were unusually blunt. "The economy is probably in the worst shape that it has been in for nearly half a century," said Eckstein. Added Walter Heller, an economics professor at the University of Minnesota who was chairman of the Council of Economic Advisers under Presidents Kennedy and Johnson: "This is the deepest and most dangerous recession of the postwar period." Rimmer de Vries, chief international economist for the Morgan Guaranty Trust Co., joined the gloomy chorus: "We are sitting here in the midst of a major depression."

Recovery has been delayed, said Heller, because "the consumer is still shell-shocked by unemployment." And with good reason. The jobless rate has hit 10.8%, leaving nearly 12 million Americans out of work. Heller cited statistics indicating that about 20% of all households are directly affected by unemployment and that another 40% feel threatened by mounting layoffs. The TIME board predicted that the jobless rate will reach 11.3% in 1983's first quarter before beginning to drop slowly. Even by the end of 1983, unemployment will still be hovering around 10%. "The unemployment problem is not going away quickly," said Alice Rivlin, director of the Congressional Budget Office and a guest panelist last week.

More than 30% of U.S. industrial capacity now stands idle. As a result, companies are expected to slash real capital spending by 8.5% next year. That cutback almost guarantees that any business recovery will be painfully gradual.

Most ominous, the U.S. slump is only part of a worldwide pattern of malaise. In the European Community, more than 11 million people, or 10.3% of the work force, are unemployed. Developing nations from Africa and Asia to Latin America are staggering under a $626 billion foreign-debt load. A string of near defaults on loans to Mexico, Argentina and now Brazil (see box) has rocked the international monetary system.