Barring a Christmas miracle, 1990 will go down in history as the end of an eight-year economic expansion that was the longest ever in peacetime.
A senior Bush administration official said the economy could shrink by 1 to 2 percent in the closing three months of the year and Treasury Secretary Nicholas Brady has come close to admitting that a recession is looming. He put the blame on the Persian Gulf crisis, saying it has sapped consumer confidence.
The downturn caps a non-stop run of growth that began in December 1982, when the United States crawled out of its last recession, which was induced by a sharp rise in oil prices.
Sensing the renewed danger of recession, the Federal Reserve said in late December that it would lower a key interest rate, a sign that its top priority is fighting economic weakness.
The cut in the discount rate to 6.5 from 7 percent -- the first change in the rate in 22 months -- was widely seen as a strong signal that the Fed wants to stimulate borrowing by consumers and business people, thereby boosting spending and economic activity.
Some experts wondered, however, whether the move would be enough to forestall a recession.
"I don't think it's the end of the world even if we have a recession," Brady said. "We'll pull back out of it again. No big deal."
Optimists like Brady argue that the economy's underlying strengths -- climbing exports, lean inventories and entrepreneurial zeal -- will help the United States snap out of its slowdown once the Gulf crisis ends and oil prices fall.
Some private economists do not agree with that scenario, however. They say the nation is likely to suffer a long economic slump as it struggles to recover from the borrow-and-spend binge that helped fuel eight years of economic growth.
"It will be a long and moderately severe recession," said David Jones of Aubrey G. Lanston & Co. "It will be much more difficult and time consuming to get out of it."
That would be bad news for President Bush, who has been gambling that any downturn will be long gone by the time he runs for re-election in 1992.
The scramble to avoid that already has begun, with conservative and moderate Republicans openly feuding over how best to promote growth and lay the groundwork for a strong recovery.
Some rightwingers advocate a return to the tax cut policies of the Reagan years, in particular a cut in the capital gains tax. Moderates are resisting that.
The trouble is that the usual tools used by the government to rev up the economy in case of recession -- federal spending and tax policies and manipulating interest rates -- have been dulled by the high levels of government and corporate debt, some economists said.
The Bush administration can't afford to pump up the economy through higher spending or tax cuts because the government budget deficit already is well over $200 billion.
And while the United States can -- and has -- lowered interest rates to try to stimulate demand, the economic impact of easier monetary policy has been muted by the unwillingness of many banks to lend and the reluctance of many borrowers to take on more debt.
Despite successive interest rate cuts by the Federal Reserve, major banks were slow to lower their prime lending rate, keeping it high to build up depressed profits.
Some administration officials have blamed government regulators for the so-called credit crunch, contending that excessive regulation has discouraged banks from lending even to creditworthy borrowers.
"The basic problem is that we have had a period of very high building, very high levels of debt, and we're going to have to live through an adjustment," said L. William Seidman, chairman of the government-run Federal Deposit Insurance Corp.
Lanston's Jones said he expects the economic slump to last two years -- more than twice the normal length for a recession -- and to develop in a saw-tooth fashion, with quarters of growth followed by periods of contraction. That would extend the downturn right up to the eve of the 1992 elections.