Several indicators are showing that a slow and steady recovery is not a done deal, or is it?

Six months ago, economists were split over prospects for the U.S. economy. Some predicted that a deep recession was inevitable. Others forecast a brief stumble. Both were wrong.

Now, a consensus is forming that the U.S. soon will begin a steady, albeit slow recovery, with the economy growing at about a 1 percent annual rate in the fourth quarter of this year and accelerating gradually toward a 3 percent pace by late 2002.

Yet, the jury still is out on that one, and the optimists have little evidence to present. The case rests on the assumption that the Federal Reserve’s spate of interest-rate cuts and the tax-refund checks now being mailed will spur the economy to life.

“That reasoning is both unsound and disingenuous,” said John Makin, an economist at the Republican-leaning American Enterprise Institute in Washington, who challenges the widespread notion that the U.S. economy is about to begin recovering.

“No one really knows how much if at all these standard counter-cyclical measures will boost spending, and over what time their effects will appear,” Makin asserted.

Makin’s view isn’t isolated. Ed Yardeni, chief investment strategist for Deutsche Banc Alex. Brown in New York, believes the U.S. economy is “just going to be crawling along the bottom for a while” in a malaise much like that of the early 1990s.

Similar factors

“A lot of the same elements are present now lackluster growth, disappointing profits and excesses in the financial system,” Yardeni said.

The economy of the early 1990s didn’t respond to rate cuts very quickly, Yardeni points out. The Fed cut its target rate on overnight loans between banks by 5.5 percentage points between November 1989 and December 1992, yet the slump continued through late 1993.

For the four years beginning with the second quarter of 1990, a period that included the recession, the economy grew at a 1.5 percent annual rate. At last, in 1994, growth accelerated to 4 percent.

This time, the U.S. central bank has reduced rates by 2.75 percentage points over the past eight months, and Fed policy makers have conceded that signs that rate cuts have had much effect are hard to find.

Long-term interest rates haven’t fallen appreciably since the Fed began its round of rating-cutting Jan. 3. The yield on 10-year Treasury notes, a benchmark for mortgages, has edged down to 4.966 percent from 5.158 percent at the start of the year.

The value of the U.S. dollar, which ordinarily should be falling in the wake of the Fed’s rate-cutting, has continued to rise, crimping U.S. exports and exacerbating the slump afflicting America’s manufacturers.

Moreover, at a time when many economists predicted the United States would be in a recovery, the economy has been bouncing along the bottom at an annualized growth rate of less than 1 percent, with the possibility that revised figures may show that gross domestic product shrank in the second quarter.

With manufacturing and computer-related industries sagging, profits and capital investment weak and the stock market working off its excesses, the economy is hobbled by a case of blahs like those of the early 1990s, Yardeni says.

The impact of advance tax-refund checks isn’t certain. Although economists insist that the $40 billion it would pump into the economy can’t be dismissed, some tax experts are skeptical about how much of it consumers actually will spend.

The question economists haven’t been able to answer is how the economy will get from the current stagnation to the kind of moderate growth they’re predicting for 2002.

If unemployment rose rapidly, economists say, it would scare American consumers and prompt them to cut back on spending, tipping the economy into recession. “We’re still very much in the recession danger zone,” Yardeni said.

Not everyone is so troubled by the current doldrums. “If the economy’s in the process of gaining strength, you’re not going to know that for some time,” said James Glassman, senior economist at J.P. Morgan Chase in New York.

“Wherever you look autos, housing you see hints of a possible pickup,” Glassman said. “If you’ve got the Fed stepping on the gas and you’ve got fiscal policy going in the right direction, something’s got to happen.”

But what happens if the Fed’s rate cuts and the refund checks don’t do the trick? Cut interest rates further and continue to increase the money supply, and cut taxes even more as the government has done in previous slumps economists say.

That’s easy enough from a technical standpoint. However, some analysts fret that, barring a really deep recession, the Fed may be leery about cutting much beyond last week’s cut.