White House Concedes U.S. Is in Recession : Economy: To avoid fight with Congress, Administration won’t push for tax and budget policy changes that might speed recovery.

Bowing to the inevitable, the White House finally conceded Wednesday that the nation’s economy appears to be in the midst of a sharp recession that is likely to continue until next summer.

Michael J. Boskin, President Bush’s chief economic adviser, said in a televised interview that the economy “probably has entered a recession”--the Bush Administration’s bluntest comments to date on the current slump.

Boskin’s assessment was made as several of America’s largest banks cut their prime lending rates--the interest they charge preferred corporate customers--to 9.5%, down half a percentage point. Among them were Citibank, Chase Manhattan Bank and Morgan Guaranty Trust Co.

The prime rate reductions, which will affect some consumer loans, are expected to spread throughout the U.S. banking system. The San Francisco-based Bank of America had announced a similar cut Monday.

Despite the new candor in assessing economic conditions, White House officials said that the Administration still has no plans to change federal tax or budget policies in an attempt to jump-start the economy.

Sources said that President Bush has made it clear that he does not want to fight Democratic leaders in Congress over domestic economic policy at a time when he is preoccupied with the threat of war in the Persian Gulf.

As a result, although Bush has not made a final decision, sources said that he is unlikely to push for a capital gains tax cut this year, despite his long-standing pledge to the business community to seek one. He is also expected to try to avoid a rancorous fight with the Democrats over the budget.

Sources said that the White House has virtually ruled out the possibility of seeking a temporary tax increase to finance a war in the Middle East. An emergency surtax, like the one imposed during the Vietnam War, would require congressional approval, and lawmakers appear to be deeply divided over the Administration’s Persian Gulf strategy.

Instead, sources said, the Administration is almost certain to increase government borrowing--thus increasing the federal deficit--to pay for the growing military buildup in the gulf.

Boskin made his declaration just after the release of a transcript of a recent television interview in which Bush acknowledged that at least some regions of the country are experiencing recessionary conditions.

Unlike Boskin, however, Bush stopped short of declaring that the entire nation had entered a recession. Also, the President stressed a belief that, if a nationwide recession develops, it will be mild and short.

Over the last few months, Bush and his senior advisers have attempted to limit the political fallout from the worsening slump by avoiding use of the word recession to describe current economic conditions. A recession technically is defined as two consecutive quarters of declines in the gross national product, the nation’s output of goods and services.

Administration officials have relied on euphemisms like “lull” or “slowdown” to describe current conditions, despite mounting evidence of a severe drop in economic activity and the nearly unanimous consensus among private economists that a recession began early last fall.

The Administration has come under increasing criticism for refusing to acknowledge what virtually every other economist said was obvious.

Administration sources said that the White House had held off on declaring a recession in an attempt to determine first whether a peaceful resolution of the gulf crisis could be reached quickly. A settlement there could reverse the oil price increase of recent months and cause consumer confidence to rebound.

Senior officials noted also that, during the eight previous economic contractions since World War II, on only one other occasion did the White House actually acknowledge a recession before two consecutive quarterly declines in GNP had occurred.

The Administration’s grimmer outlook coincides with a new White House economic forecast that projects a sharp drop in the GNP during the fourth quarter of 1990, along with a milder decline during the first three months of 1991.

The forecast by Boskin’s office, which will be publicly released in February for use in making economic assumptions for the 1992 federal budget, predicts that the final figures will show that the recession, as technically defined by economists, began this winter.

The forecast estimates that the GNP declined at a 3.4% annual rate in the fourth quarter and that it will fall at a 1.3% rate in the first quarter. In addition, it predicts that the nation’s jobless rate will rise to a peak of 6.8% during the recession. The November unemployment rate, the latest available, was 5.9%.

With the Administration’s decision to declare that the nation is in a recession, only one major governmental institution--the Federal Reserve Board--is still refusing to publicly acknowledge the consensus opinion. Fed Chairman Alan Greenspan has skirted use of the “R word” by describing the economy as being in the midst of a “significant” downturn.

But the Fed clearly is concerned about the slump and has moved quickly in recent weeks to cut interest rates.

With the Administration ready to rule out a push for major changes in tax and budget policies, the White House is looking to the Fed’s policy-makers to provide the economy with enough juice--in the form of even lower interest rates--to weather a possible war in the Persian Gulf.

Administration sources suggested that the White House and the Fed are in general accord on the course of monetary policy and have an understanding about the need for the Fed to cooperate with the Administration on economic policy in the event of military action.

In fact, Administration influence at the Fed is likely to increase in coming months.

DECLINING ECONOMY

Percentage change in the Gross National Product, inflation-adjusted annual rates. 1990 1st Quarter: 1.7% 2nd Quarter: 0.4% 3rd Quarter: 1.4% 4th Quarter*: -3.4% 1991 1st Quarter*: -1.3% * White House Estimates Source: Commerce Dept.