U.S definition of Recession..

At a time when many Americans believe that a recession has descended on the country, they are being told by Government officials to put their worries aside for the moment because other economic issues, mainly inflation, have to be dealt with first.

At a time when many Americans believe that a recession has descended on the country, they are being told by Government officials to put their worries aside for the moment because other economic issues, mainly inflation, have to be dealt with first.

This message is coming from the Federal Reserve, but the Bush Administration is not openly challenging the thesis. And the top financial officials of the six other major industrial nations, meeting in Washington this week, have also declared that recession, or the threat of it, is still a second-rung issue.

The Group of Seven industrial nations - the United States, West Germany, Japan, France, Britain, Canada and Italy - even issued a communique calling recession talk too pessimistic. The communique spoke of ''solid growth'' in the industrial world, ignoring the obviously sluggish economies in the United States, Canada and Britain.

Millions of Americans, in particular, are experiencing unemployment, wage freezes, bankruptcies and falling real estate prices, and concluding that what they are living through constitutes a recession. How can their perception, reported in public opinion polls, differ so strikingly from that of the Federal Reserve and its counterparts elsewhere?

The answer is that the central banks remain more worried by the threat of inflation than of recession, and that to ignore the inflationary dangers now will only mean a deeper recession later. The Middle East crisis is the principal reason for the anti-inflationary consensus, mainly because it pushed up oil prices so sharply.

Apart from the oil price shock, the Federal Reserve is keeping interest rates up to slow a sharp fall in the dollar since July. A weak dollar is inflationary because it pushes up the price of imports and the Federal Reserve tries to counteract this by keeping interest rates high enough to convince holders of foreign currency to buy dollars and invest them in American securities.

The problem with this strategy is that high interest rates, the tool used by Western central banks to fight inflation, tends to make weak economies, like that of the United States, even weaker, by discouraging the borrowing that finances purchases and investment.

''The Federal Reserve, in particular, is admitting, in effect, that under the current strategy, it cannot avoid a contraction in the economy over the next one or two quarters,'' said David Hale, chief economist at Kemper Financial Services. ''Most of us consider that to be a recession.''

A New Definition

No wonder, then, that Alan Greenspan, in testimony last week before the Joint Economic Committee, argued for a definition of recession that is more stringent than the traditional public concept of one. The popular view is that a recession occurs when the gross national product - the total value of the new goods and services that the nation is constantly producing - shrinks for six consecutive months.

Mr. Greenspan acknowledged that the economy was very sluggish, so much so that the G.N.P. grew at an annual rate of only 1 percent during the first six months of 1990, including a minuscule four-tenths of 1 percent in the second quarter. Without much change in the public's current sense of malaise, the G.N.P. could easily slip into negative growth for two quarters, he says.

A true recession, Mr. Greenspan argued, is a ''cumulative unwinding of economic activity,'' and not simply a few months of mildly negative G.N.P. growth that might be reversed when the Commerce Department issues its annual revisions of earlier statistics.

The Greenspan formula requires a steep, widespread decline in economic activity, the sort of trouble that develops when stockpiles of unsold goods build up as consumer spending drops. As a result, factory orders are canceled, corporate profits fall, capital investment is cut back and the unemployment rate shoots up. Looking for Elbow Room? Many economists accept this process as a key cause of some postwar recessions. But some note that by raising the issue now, Mr. Greenspan might be trying to give the Fed elbow room to keep interest rates high, even during a quarter or two of negative G.N.P. growth.

''The Fed declares that there is no recession, so there is nothing that requires drastic policy changes,'' said Alan Levenson, an economist at the WEFA Group, an economic consulting firm. ''But an individual can look at what is happening to himself and end up behaving as if he were in a recession.''

If the Federal Reserve is seeking elbow room, it is doing so largely out of concern that rising oil prices, if not countered with high interest rates, will produce a situation in which workers successfully push for wage increases to offset the higher costs of gasoline, heating fuel and numerous petroleum-based products. The resulting wage-price spiral, Mr. Greenspan argues, would force the Federal Reserve to counterattack by pushing up interest rates very sharply, in the end provoking greater economic weakness than exists today. Something like this occurred after the Arab oil embargo in October 1973.

The Group of Seven's communique, signed by Mr. Greenspan and Treasury Secretary Nicholas F. Brady, made the same argument, stating that ''stability oriented monetary policies'' - a euphemism for high interest rates - would ''reduce the risks of lower economic growth'' in the future. And Mr. Brady joined in the recession putdown, stating at a news conference that the American economy still has ''underlying power.''

Nevertheless, the danger for the Fed, and for the nation, is that the United States will fall into recession while Mr. Greenspan and the 17 other Federal Reserve policy makers are still maintaining rates at present levels. The interest payments on mortgages and most other consumer loans are at 10 percent or more.

'You Hear of Real Weakness'

No economist knows how long it might be before the oil price shock wears off and the Consumer Price Index, which jumped in August, subsides to an annual rate of less than 5 percent, the level that has prevailed for most of the last five years. But even if the oil shock inflation does not subside soon, the recession danger has prompted some economists to urge the Federal Reserve to lower interest rates anyway. A minority among the Federal Reserve's policy makers favor this approach, including Martha Seger, a governor.

''If you talk to people who are real business people and not economists sitting in a library or the Federal Reserve, you hear of real weakness,'' she said. ''And if you talk to people in construction and housing, it is really terrible.''

That raises the definition question again. The National Bureau of Economic Research, a prestigious private institute that has become the nation's official arbiter of when recessions begin and end, offers a definition that seems closer to the Greenspan view than the popular one. It says a recession is ''a recurring period of decline in total output, income, employment and trade, usually lasting from six months to a year and marked by widespread contractions in many sectors of the economy.''