How To Stop Worrying And Love The Next Recession

Companies that managed the last recession best are planning for the next one now.

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THERE IS A STORY -- NO DOUBT AN apocryphal one -- about John Maynard Keynes, the great British economist, who found himself on a train one day near the end of his distinguished career. A conductor approached, collecting tickets. Keynes searched for his in vain. Finally, the conductor told him not to worry, just send in the ticket when he found it. Keynes looked up with some irritation. "The problem," he said, "is not where my ticket is. The problem is, where am I going?"

These days, there is no shortage of economists telling us where we are going, and few of them seem to think we're going into a recession at any point in the near future. The Reagan Administration predicts that the U.S. gross national product will increase 4% in 1986, up from 2.3% in 1985. Private economists generally agree, give or take a percentage point.

Unfortunately, such numbers are almost meaningless to anyone who runs a company, as most economists will readily concede. "You really can't take GNP as an indicator of sales growth or, for that matter, anything," says Allen Sinai, chief economist at Shearson Lehman Bros. and (next to Jeane Dixon) probably the most quoted prognosticator in the country. "GNP forecasts may inspire policymakers to do things like increase or decrease the supply of money but, aside from that, they're pretty empty."

There's another problem with such rosy predictions. Empty or not, they tend to hide a simple, if regrettable, truth: sooner or later, a recession is inevitable. The only unknowns are when and how bad.

So what, you might ask, can economists tell us about the future of the economy? Surely, there must be some trends that are significant for people building companies, some clues as to how they should be preparing for what lies ahead. Can't economists at least enlighten us about those?

Well, no.

Not that the trends don't exist. It's just that economists can't seem to agree on what they are, or what they mean. "The unique thing about this period is that you can find bankers and economists to support almost any economic scenario you can come up with," says Dean Treptow, president of Brown Deer Bank, in Brown Deer, Wis., and a shrewd observer of such phenomena. "I've never seen such a wide diversity of economic forecasts as we're seeing right now. It's almost chaotic."

Take inflation. Some forecasters see inflation rising to 6% or 7% in the coming months, pushed up by a weaker dollar and growth in the money supply. Others say, no, inflation will definitely hold steady at about 3%. Still others contend that the thing we have to worry about now is deflation, thanks to excessive industrial capacity across much of the economy.

Or what about the dollar? Can't we at least expect some relief when it finally weakens against foreign currencies? Absolutely, say some economists: a falling dollar will stimulate exports and help American companies compete against imports. Baloney, say others: it will have little effect, if any, because foreign companies have used the past few years to prepare themselves for such competition, improving the quality of their goods.

Consumer installment debt? A real sword of Damocles, say some economists, noting that debt as a percentage of disposable income is currently at an all-time high (close to 20%). A red herring, say others, pointing out that much of that debt takes the form of credit-card balances, which many people pay off every month.

The effect of Gramm-Rudman? It will cure the deficit problem once and for all, assert some. No, say others, it will require a massive, across-the-board reduction in government spending, with catastrophic effects on the economy. No, it will force an equally devastating tax increase. No, it's unconstitutional and, therefore, irrelevant. You pays your money and you takes your choice.

We could go on and on, listing fundamental disagreements about major issues, until you might begin to wonder whether we know anything about the economy at all. The answer to that question is yes. We do know, for example, that the current recovery -- which began in November of 1982 -- has already lasted longer than the recovery of 1954-57, but not quite as long as the recovery of 1970-73. We know as well that, as of last November, the percentage of American adults employed (60.7%) was at an all-time high for any expansionary period; then again, so was the percentage of American adults unemployed (6.9%) for any expansionary period. We also know that consumers appear to be exceptionally bullish about the future: after declining for several months, the University of Michigan's Survey of Consumer Attitudes, a 33-year-old composite index, shot up to 93.9 in December, very near its historic peak.

And there's one other thing we know. We know, or at least we can be reasonably sure, that the forecasters won't warn us about the next recession until it's too late. "It has been a long time -- like since the Peloponnesian War -- since any significant number of forecasts have predicted recession until after it had actually begun," notes Albert T. Sommers, senior fellow and economic counselor of The Conference Board, a New York City-based business group.

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