The dreaded R-word is out in the open as more economists suggest that chances of a recession next year are rising.
The monthly Recession Watch Index at Detroit's Comerica Bank, which forecasts the likelihood of a national recession during the succeeding 12 months, currently hovers at 40%, up from 28% last spring.
"Recession risks have climbed rapidly in recent months, following dramatic deterioration in credit conditions since August and stock market declines," according to James Glassman, chief economist at Chase Securities Inc., a unit of Chase Manhattan Corp. in New York.
Chase economists think the probability of a mild recession next year is nearing 50%, though they still think a sharp slowdown without an actual downturn in economic growth is still more likely.
Economists at Credit Suisse First Boston in New York said they think chances of a mild "growth recession" are 45% and of a more severe slide, 25%. Their most realistic scenario is that the Federal Reserve "wakes up and slashes interest rates."
Nicholas S. Perna, chief economist at Fleet Financial Group, Boston, said he thinks a recession next year is a 3-in-10 shot. "While not the most likely outcome, the odds are high enough that the risk must be considered," he said.
Other economists see no recession on the horizon-but acknowledge they are making a close call.
"Pro-growth forces for the U.S. economy still outweigh the negative factors but by a much narrower margin," said Stuart G. Hoffman, chief economist at PNC Bank Corp. in Pittsburgh.
He said he thinks the nation will remain recession-free through 1999, "but noticeably slower growth in jobs, income, industrial production, and retail sales lies immediately ahead."
Wall Street is still irked at the small size of the Fed's cut in short- term rates two weeks ago, but Mr. Hoffman based his belief that a recession can be avoided on the prospect of further rate cuts.
"Fed easings are like eating Lay's potato chips," he observed. "Nobody can ease just once."
Nor is Comerica projecting a recession, despite the uptick in its indicator-which has a 43-year track record of reliability. "The index would have to exceed 50% for four months before we would predict a recession," chief economist David Littman said Friday.
Others, however, are less sanguine.
"Stock market bulls are in a state of shock," said economist and money manager A. Gary Shilling. "The Fed eased on schedule on Sept. 29, but contrary to their expectations, stocks fell sharply."
He sees a standoff. "The bulls hope the Fed will soon ease more and that will revive stocks. The Fed, however, won't act until the profits outlook and stocks are lower. Each side is waiting for the other to move first."
The Fed will win but could then find itself "pushing on a string," said Mr. Shilling, who is based in Springfield, N.J.
"Consumers will finally suffer enough portfolio damage to realize stock appreciation is no longer a substitute for saving out of wages and salaries," he said. "Then they'll pull in their spending horns and precipitate a recession, probably starting about mid-1999."