Some recession ahead? Here's one economist who sees the makings

FEDERAL Reserve Board chairman Alan Greenspan does not see a recession this year or next. Michael W. Keran believes one is likely next year - despite April's strong increase in employment. Dr. Keran, a Prudential Insurance Company of America economist, is forecasting zero growth in national output next year. But he figures there is a 50-50 chance the real output of goods and services could actually decline slightly, producing a mild recession.

The drop in the unemployment rate to 5.4 percent, reported Friday, reflects today's strong economy, Keran notes; it doesn't predict the future.

Among some 50 economic forecasters polled by Blue Chip Economic Indicators last month, only one other had a forecast lower than Keran's. The average prediction calls for the real gross national product next year to grow 2.2 Keran, former chief economist in the Fed's San Francisco branch, doubts that Fed policymakers, many of them old friends, will pay much attention to his relatively bearish prediction.

``If I were back in the Fed, I wouldn't bet on my forecast,'' Keran concedes.

Indeed, his forecast counts on the Fed's maintaining its present monetary stance. If the Fed were to tighten up and boost interest rates, next year's slowdown would be worsened, he warns.

Nowadays, though, the Fed usually waits until the economy is actually slowing before it eases monetary policy. When its policymakers acted on the basis of predictions in the past, it sometimes found that it made a mistake - accentuating a boom or deepening a slump.

Mr. Greenspan cautioned last week that we would be foolish to pretend we have perfect insight into events two years from now.''

The Fed's careful policy of today does not prevent a slowdown. But if the Fed lowers interest rates with a quick injection of money into the economy, it can keep the recession moderate and short.

Keran forecast a strong economy in 1987 and the first half of this year. He proved to be accurate, while most economists were too pessimistic. Now he's talking of weak growth in the second half of this year and is more pessimistic for next year.

Though most economists aren't yet seeing a slump, they are anxious because of the relative age of the current expansion. It was five years old last November. It has lasted longer than any other peacetime economic upturn.

When Keran attended a group of about20 advisory economists to the Business Council last week, he found about half verbally speculating on the possibility of a recession next year. But they have't marked down their written forecasts to that level.

Keran's forecast counts on strong exports offsetting weakness in personal consumption. But these exports won't be sufficient to counter a strong dowturn in business investment.

If a slump occurs, there will be a pause in the present progress in reducing the budget deficit. The balance-of-payments deficit, though, should decline more rapidly as demand for imports falls off. Unemployment could increase moderately.

Some companies that piled up debts in the current merger boom could be in trouble. ``We will be going into uncharted waters,'' warns Keran. But he doesn't expect the failure of a number of highly leveraged companies to have a domino effect on the rest of the economy.

If the US does escape with a mild recession, its citizens can consider themselves fortunate.