Home > Business & the Economy > A Double Dip Recession

A Double Dip Recession

Many recent economic indicators are pointing to a slowing of the U.S. economy.  This has raised the speculation that we may be headed for a double dip recession.

The following  definitions will help us to speak the same language:

  • Recession – two successive quarters of negative economic growth as measured by GDP
  • Recovery – increase in economic activity and growth in GDP following a recession
  • Double Dip Recession – short period of recovery followed by another recession

As much as we may like steady economic growth, history has proven that the economy is cyclical.  There are periods of economic growth and decline.  There are also times of boom and bust.  While there have been several recessionary periods, the last double dip was thirty years ago when the economy slowed in late 1981 after rebounding from a recession in 1980.

The most recent recession may have officially ended in the summer of 2009 as GDP stopped declining, but that doesn’t mean that all has been well with the economy for the past two years.  Growth has been rather meager and sporadic, and there certainly hasn’t been any boom in economic growth to restore the trillions of dollars of wealth lost from 2007-2009.

Here are some of the recent economic statistics that make the current outlook a little bleak.

  • The unemployment rate bounced back up to 9.1% in May 2011
  • 54,000 new jobs were created in May, down from 232,000 in April
  • Retail sales dropped 0.2% in May 2011, the first decline since June 2010; auto sales were down 2.9% for the month
  • For the ninth straight week, over 400,000 people filed new claims for unemployment
  • Although oil prices have declined in recent weeks, gas is still approximately $1.00/gallon more than a year ago, and continued unrest in the Middle East and the upcoming  hurricane season in the U.S. could cause another spike
  • Higher fuel and commodity prices are causing significant inflation in food prices
  • Housing values continue to fall and an estimated 25% of all homeowners owe more on their home than its current market value
  • A $14 trillion national debt and $1.4 trillion annual budget deficit make it difficult for the U.S. government to spend money to help stimulate economic growth

Time will tell if we have a double dip recession or be able to avert it.  Irrespective of the economic terms of recession and recovery, the immediate economic outlook is not exceptional.  Things may not get much worse, but I don’t think things are going to change all that dramatically in the near future.

I believe there are three primary factors that will continue to hinder our growth.

  1. Unemployment – It’s hard to have strong economic growth when 10% of the population is out of work, and another 5-10% have either given up looking for work or are underemployed.
  2. Housing – Aside from the fact that housing has historically been a leading contributor to economic recovery, current market values put more people at risk for default and make it difficult for people to relocate.  Additionally, your house is often your largest asset, and it’s hard to have much confidence in the economy when you consider how much money you have lost and continue to lose on your investment.
  3. National Debt – The magnitude of the debt and annual deficits pose a substantial risk to the country and the economy.  The debt is manageable because interest rates are at historic lows.  A return to even moderately normal rates would place tremendous pressure on the Treasury and a rise in government interest rates will reverberate through the entire economy.

Unfortunately, there is no easy fix to any of these problems, and our political leaders have not demonstrated the ability or willingness to seriously tackle the issues.  Thus, I think the best we can hope for in the near term is an economy that sputters along with relatively stagnant growth overall.  The worst could be traumatic.

These are a few of my thoughts… what do you think?

Advertisements
  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: