Like a thundercloud over a picnic, the possibility of a recession is looming over the nation's economic future for the first time since the early 1990s.
While Washington remains stalled by budget gridlock, a growing number of economists and business analysts are worried that the economic slowdown could deteriorate into a full-blown downturn this year or next.
Such arguments are bolstered by the poor Christmas retail season, wary consumers with maxed-out credit cards, past Federal Reserve interest-rate hikes and the bearish reaction of financial markets to Washington's inability to resolve its budget mess.
A downturn in the nation's economic fortunes would mean trouble for California's emerging recovery, since about a third of the state's economic activity is directly linked to the rest of the nation.
So far, the betting is still that a recession can be avoided in 1996. Most economists are hoping that earlier forecasts for positive, though slowing, growth in the nation's gross domestic product will pan out.
"There are some signs out there now of fairly classic slowdown in the U.S. economy," said Ted Gibson, chief economist with the California Department of Finance.
The conventional wisdom is that the nation's economy will grow around 2% to 2.5% in 1996, compared to around 3.3% for 1995 and 4.1% in 1994.
But part of the problem is that few economists foresee recessions before they hit. For now, a number of forecasters are hedging their outlooks, at least for the start of 1996, with some predicting a first-quarter decline in national output. If this happens, they hope prompt action by the Federal Reserve to lower interest rates will lead to a modest economic rebound.
A variety of factors, however, could tip the nation back into a real recession (defined as at least two consecutive quarters of falling gross domestic product), particularly a dramatic pullback by consumers.
"I would say the biggest problem in the economy right now is the level of consumer debt," said Gary Shoesmith, director of the Center for Economic and Banking Studies at Wake Forest University's Babcock Graduate School of Management in Winston-Salem, N.C.
And much hinges on the outcome of the current budget talks in Washington. A delay in resolving the budget could further spook financial markets and send interest rates up, which would hurt sales of durable goods and the housing market.
