Business: Slow Rebound from Recession

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The TIME Board of Economists sees sluggish growth and stinging inflation

Ever since the nation first began slumping into recession last winter, economists have been warning that it would prove diabolically difficult for the U.S. to climb back to sustained growth without aggravating inflation. Last week, with the downturn already showing signs of beginning to bottom out, members of TIME'S Board of Economists somberly concluded that this recovery would not bring any significant slacking of price hikes. Democrat Walter Heller from the University of Minnesota appeared to sum up the views of his colleagues on the board with a rhetorical question: "Recession, where is thy anti-inflationary sting?" Instead of halting the runaway rise in consumer prices, the decline seems merely to have kept the inflationary pressure bottled up and ready to escape at the first sign of renewed economic vigor.

While inflation has fallen back from the 18.2% annual rate hit last winter, TIME'S economists predicted that the rate of price increases would dip only to about 10% by the turn of the year or early in 1981, an alarmingly high base from which the economy will again begin growing. At best, the board predicted a 1981 year-end inflation rate of 9.4%. But any number of external shocks to the economy, such as big new oil-price jumps, a bad 1981 harvest or an excessively cold winter, could send prices leaping to far higher levels than that. The board's liberals fretted over the lack of an effective program of wage and price restraints by the vote-conscious Carter Administration to keep the pressure contained still longer; conservatives worried that the nation simply will not sit still for the three to five years of slow growth that may be necessary to halt inflation in any significant way.

Board members split sharply over the timing of the economy's eventual return to good health. There was also disagreement regarding just how buoyant or fitful the recovery would be. Most members forecast that the economy would either continue to decline or stagnate until the end of the year—this is in sharp disagreement with Commerce Department Chief Economist Courtenay Slater, who two weeks ago declared that the recession had ended in July or August. A minority of TIME'S economists anticipated that a modest drop would continue into early 1981.

Some figures released last week suggest that the economy is beginning to slow its rate of descent, if not to bounce back altogether. After six months of steady decline, industrial production in August rose 0.5% from the July level, while August's construction of new residential housing rose 12% over the previous month's depressed levels. Overall, preliminary statistics showed, in fact, that the contraction of the economy as a whole halted between July and September, as compared with the sharp 9.6% decline that had been registered between April and June.