New Tactics at Half Time

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Even the gloomiest figures, though, now offer some paradoxical cheer. The fourth-quarter dive in G.N.P. resulted largely from a cleanout of inventories of unsold goods, especially cars. That puts business in a position to raise production sharply and rehire workers once final sales turn up, as auto sales already have. Housing starts last year, at 1,061,000, were the fewest since 1946. But the monthly rate, even after a December setback, has jumped 43% from its October 1981 low. Further increases are likely because of a sharp drop in mortgage interest rates that also was the primary force pushing down consumer prices in December. Personal income last year rose only 6.4%, the puniest increase in 19 years. Still, that was above the rate of inflation, so those Americans who are not among the 12 million unemployed enjoyed a genuine, though small, increase in their ability to buy goods and services.

On balance, the economy does seem to be poised for a recovery, but one that most economists still expect to be so slow that unemployment will remain above 10.5% for many months to come. More worrisome, there are signs that a vicious circle has begun that could block any sustained ad vance. The fourth-quarter drop in G.N.P. so reduced tax collections that the federal deficit in fiscal 1983, which started Oct. 1, is now certain to exceed $200 billion. That intensifies the threat that Government borrowing to cover the deficit will gobble up the lendable money needed to finance business investment and consumer buying. A group calling itself the Bi-Partisan Budget Appeal, headed by former Secretary of Commerce Peter Peterson, last week published an ad calling on Reagan to make draconian reductions in the deficit. The ad was signed by five former Secretaries of the Treasury and some 500 top lawyers, academicians and heads of blue-chip corporations.

Reagan, who long dismissed deficits as a kind of passing annoyance, formally recognized the danger last week. Said he: "A high priority must be to get a hammerlock on this monster known as the federal budget." It is too late now to do anything much about fiscal 1983, but White House aides hope to propose a budget lowering the fiscal 1984 deficit to $188 billion. By their figuring, that would be $47 billion less red ink than could be expected if all federal programs were to continue unchanged. (Both numbers were calculated at the end of last week and could be revised further.)

A big chunk of the saving would be provided by the payroll-tax hike and delay in benefit increases recommended last week by the Social Security commission. The rest would come from an $8 billion reduction in planned military spending already announced by Secretary of Defense Caspar Weinberger, skipping of a pay increase for federal employees, a delay in cost of living increases for federal civilian and military as well as Social Security pensioners, and further reductions in such social programs as food stamps, Medicare and Medicaid. Overall, the aim is to freeze most nondefense spending at fiscal 1983 levels in dollar terms. That would mean real cutbacks in many programs; how severe would depend on the rate of inflation. In both his State of the Union speech and budget message, Reagan is sure to sound the theme that everyone must sacrifice in order to get the deficits under control.