New President May Confront Recession

Monday, December 4th 2000, 12:00 am

By: News On 6

WASHINGTON (AP) â€” President Clinton may be taking more with him than his suitcase when he leaves the White House on Jan. 20. His amazing run of luck with the economy seems to be disappearing as well, right on cue with the end of his second term.

That means that his successor, either George W. Bush or Al Gore, will have to navigate stormier seas. Some forecasters are even worried about a recession next year â€” a problem Clinton never had to confront as he presided over a record stretch, now in its 10th year, of uninterrupted economic growth.

``However one looks at it, the economic data recently have been quite negative and the possibility of a serious hard landing is rising,'' says Allen Sinai, chief economist at Decision Economics in New York.

While Sinai said he believed the chances of an outright recession â€” where economic growth actually contracts â€” are still small, he was concerned about a prolonged period of weak growth that would translate into a rising unemployment rate.

David Levy, an economist at Bard College in Annandale-on-Hudson, N.Y., was even more pessimistic, putting the odds of a full-fledged recession next year at 70 percent.

``When you put all the problems facing the economy together, it is not a pretty picture,'' Levy said.

Things were not supposed to turn out this way. The overwhelming view among economists had been that the United States was headed for a soft landing in which a series of interest rate increases by the Federal Reserve would slow economic growth enough to keep inflation in check without tipping the country into a recession.

But since the Nov. 7 election, while the country has been transfixed by the ballot battle in Florida, the economic ship of state has been springing leaks.

A series of government reports has shown unexpected weakness in areas ranging from consumer spending to U.S. factory orders.

The weaker economic data have added to pessimism on Wall Street, which has been on a stomach-churning ride for most of the fall. The technology-heavy Nasdaq index has lost almost half of its value since record highs in March.

The concern is that the sharp fall in stock values will trigger a cutback in business investment and consumer spending, two of the major driving forces behind the current expansion.

Clinton had the good fortune of taking office as the country was pulling out of the 1990-91 recession. That period was called the jobless recovery because even though the economy was growing again, the unemployment rate was stuck at high levels â€” 7.5 percent in 1992 â€” which Clinton used with success against President Bush.

Many economists still believe the most likely outcome for 2001 will be growth of around 3 percent. Presidential spokesman Jake Siewert said Monday that none of the top economists surveyed each month by Blue Chip Economic Indicators was forecasting a recession for 2001.

``By any measure, the economy is in far stronger shape than it was eight years ago and the outlook for the future remains bright,'' Siewert said. He noted that none of the 50 economists in the Blue Chip survey was forecasting growth of less than 2.5 percent next year.

But growth of 2.5 percent to 3.5 percent will seem lackluster compared with the supercharged 4-percent-plus rates turned in during the past four years, the best performance since the mid-1960s.

``The economy was a good friend to the Clinton administration and it is just not going to be as friendly to the next administration,'' said Mark Zandi, chief economist at Economy.com, a West Chester, Pa., forecasting firm.

Bruce Steinberg, chief economist at Merrill Lynch in New York, said if the economy threatens to weaken more than the 3 percent range, the Fed can quickly step in with rate cuts to recharge consumer spending and bolster the stock market.

``If things get weak, they will react. They won't sit around twiddling their thumbs,'' Steinberg said.

Other analysts worry that a variety of factors could derail the Fed's efforts to achieve its soft landing; for example, rising corporate and personal debt levels that could threaten the nation's banking system, or a sudden flare-up in the Middle East.

Jerry Jasinowski, the head of the National Association of Manufacturers, said business executives are also concerned that the rising level of bitterness over the undecided presidential election will stalemate Republicans and Democrats, preventing the government from acting to bolster a faltering economy.

``It's still 'the economy, stupid' and politicians seem to be forgetting that just when the economy is headed south,'' Jasinowski said.

â€”â€”â€”

On the Net:

Federal Reserve: http://www.federalreserve.gov

National Association of Manufacturers: http://www.nam.org