U.S. Economy Will Recover Slowly in ’92

What’s ahead for 1992? A relatively speedy end to the recession, economists say.

Sure, sure. You’ve heard that one before. By now, the end of the recession has been heralded at least half a dozen times. Some optimists predicted that the final round of fighting in the Persian Gulf would jettison the recession because Americans--heady with success--would hit the malls for a victory spend. They didn’t.

Others waited to ring the recession’s death knell until mid-1991, when the nation saw a slight and momentary pickup in housing demand.

Heedless of the experts, the recession lingers on.

The latest consensus is that prosperity will return in the spring. What makes this prediction more likely to be right than the others?

Not a lot, economists acknowledge.

“We are going to be right eventually; it is just a question of when,” said Gary Schlossberg, senior economist at Wells Fargo & Co. in San Francisco.

Still, there are signs that the economy could soon stage a modest recovery, Schlossberg and others noted. New statistics on housing and mortgage lending look positive, for example, he said.

Housing is an important indicator of economic health, largely because buying a house often spurs a series of additional expenditures--on washers and dryers, refrigerators, furniture and more.

There’s also been a modest rise in exports, which helps to buffer the effects of diminished domestic demand, Schlossberg added.

Despite recent turmoil in the stock market, prices on Wall Street are also a good sign. The stock market is a leading economic indicator because, at least in theory, it reacts to news that’s six months ahead. Stock prices have soared since the beginning of the year and are still reasonably near their all-time highs.

And finally, interest rates are at 15-year lows. Rapidly dropping mortgage rates have touched off a wave of refinancing, which should leave homeowners with lower monthly payments.

Credit card rates are also likely to fall, some experts maintain, even though efforts to legislate lower credit card rates appear dead. A total of 166 credit cards are now offered at rates below 15%, said Robert B. McKinley, publisher of Ram Research & Publishing Co. That’s up from 105 such low-rate cards at the beginning of the year.

Since consumers are flocking to low-rate issuers--there’s been a near 10% average increase in new accounts at institutions with low rates, while high-rate issuers are losing about 5% of their market share annually--more issuers are cutting rates, McKinley noted.

What that spells, of course, is more money in the hands of indebted consumers. Economic policy-makers hope that that added cash will burn a hole in a few pockets and consumers will spend. That, in turn, should fuel a recovery.

Yet several important economic signals remain ominous.

There has been virtually no improvement in unemployment statistics in recent weeks, and some economists believe that things will get worse before they get better. Belt-tightening companies continue to lay off workers, and now some state governments are implementing layoffs and pay cuts as well.

Worse, federal and state budget deficits are spurring tax increases at a time when Americans can least afford them.

Normally, when the economy is in a slump, the federal government tries to cut taxes or raise spending to stimulate the economy. But fiscal policy is constrained by years of deficits accumulated during the good times.

Finally, consumer confidence is at a low ebb, which bodes ill for spending.

Nevertheless, some economists remain certain that the worst is over.

“People are almost always incredibly pessimistic at the end of a recession,” said Jack Beebe, senior vice president and director of research at the Federal Reserve Bank of San Francisco. “The consumer’s fear and pessimism should pass naturally in the next three to four months.”

But because of all the negatives and uncertainties, economists are not expecting a rollicking rebound. At best, they say, the economy will grow at a 3% to 4% rate. More likely, it will grow at a 1% to 2% rate. That’s a fraction of normal post-recessionary growth rates.

Such slow growth is bad news for those out of work. Until there is a reasonably strong pickup in economic activity, unemployment is likely to remain high, Beebe said. It also paints a dreary picture for pay increases.

In other words, even though the recession may technically end early next year, consumers may continue to suffer the effects for some time.