OCR Text |
Show B,...ua .,iimiiiiliiiu tint I mm I CGEKD SECOND HALF 1980 BUSINESS PROSPECTS During 1979 and in most of the first quarter of 1980, economists were " divided in their views as to whether the American economy faced a period of recession. However, any doubts on this score have been decisively erased by results of business activity for this year's second quarter. In the wake of the monetary and fiscal moves to fight inflation, weakness in the key automotive and residential building sectors deepened and other segments of the economy also succumbed to the multitude of influences in-fluences adverse to economic vitality. RECESSION NOW A FOREGONE CONCLUSION Technically speaking, the existence of an economic recession must still await additional data of a confirming nature. According to the definition which is now accepted by most government and private economists, a recession consists of two consecutive quarters in which the real gross national product (GPN, ex inflation) declines. Therefore, the steep slide which real GNP has undoubtedly registered in the second quarter means that as yet only half the minimum requirement for a bona fide recession has been met. Another decline must occur in the third quarter as well before the recession can be considered "official." The severity of the letdown in business activity during the past three months leaves little doubt that the economy has lost a good deal of vitality. And the staff of Babson's Reports fully expects the economy to suffer another decline this summer, thus constituting an actual recession. ' The 19R0 final r;uarter, in fact, will likely experience further slippage also. We expect, however, that the size of the slump in real GNP during this present quarter will be less severe than the magnitude of its plunge during the past three months, and that the rate of descent will taper off even more in fourth quarter 19H0. For 1980's second half as a whole, however, Babson's sees economic activity trending down on balance. PROBLEMS WILL PREDOMINATE There is no question, therefore, that the picture for at least the next six months will not be very cheerful. This does not augur well for employment conditions, and the unemployment rate is destined to work higher perhaps approaching the 9 percent-10 percent range Ixfore peaking out. This should mean further trimmings of factory work weeks, with the net effect slippages slip-pages in consumers' earned incomes. The wave of layoffs and shortened work weeks has already weakened investor confidence and the prospect of further deterioration in employment and earned incomes will make consumers con-sumers even more reluctant to spend SIGNS OF BETTERMENT TO EMERGE Even though the remainder of 1980 will be no picnic, the steepest portion of the decline in economic activity has, in all probability, already occurred. The sharp drop in interest rates since early spring will undoubtedly continue to make headway ( though at a less abrupt pace), providing an important prerequisite for betterment in overall i |