On and On and On!
Nearly a year ago, I wrote about what some must have thought was a culinary lesson, “Alphabet Soup or Double-Dip?” As much as I love to cook, sadly, I was referring to the notion of a double-dip recession and the likelihood we were experiencing one at that time.
A year later, it’s as if time has stood still. From that column, “we continue to labor along this seemingly never-ending, yet hopeful, path to recovery. I wonder how many years will pass before this discussion becomes unequivocally past tense? Truth is, no one really knows.”
Has time truly frozen us in a state of economic despair? I can almost hear the Peas singing “and it goes on and on and on.”
Where exactly do things stand? In early 2010, positive indicators lifted the spirits of Americans, regardless of socio-economic status. Unemployment had dropped, while job growth, consumer spending and consumer confidence all rose. The “worst-is-over” bandwagon was overflowing. Then came the end of the First Time Home Buyer Tax Credit Program on April 30 (2010) and its brakes slammed, throwing many off that wagon.
By textbook standards, there’s no specific academic theory or universal classification system for characterizing economic recessions and their recoveries. They are always painful, and double-dip recessions are even more so. They occur when the economy slips back into a recession while still trying to recover from the last one. Typically, a sharp downturn is followed by a short period of growth, even just a few months, only to rather quickly fall back again.
With just 54,000 jobs created, May’s jobs report confirmed the widely-held belief that the recovery of the world’s largest economy has absolutely stalled. Bloomberg economists had predicted an increase of 165,000 jobs, modestly lower than the year-to-date monthly average of 182,000, increasing speculation that we once again find ourselves on the brink of a dreaded double dip.
On top of that, the media darling and arguably most common barometer of the nation’s economic health, unemployment has also contributed to the double-dip believers. How so? The nation’s jobless rate peaked at 10.1% in October, 2009, and then continued on a steady and improving decent for 16 of the next 17 months, reaching 8.8% in March. Unfortunately, the last two months (9.0% in April, 9.1% in May) have seen the first back-to-back months of increasing unemployment since that peak nearly two years ago.
As I’ve explained before, economists have been reporting, and debating, the likelihood of a true double-dip for at least the last year. Truth is double dip recessions are very rare. The closest the U.S. has come to experiencing one was the three-year period between 1980 and 1982, but many still argue whether it actually occurred and no federal agency officially named it as such.
In laymen’s terms, double-dips typically happen because people and businesses stop making purchases after a period of heavy activity. That’s not what we have now. Consumers and businesses delayed purchases starting in 2007 and that continued at least through mid-2010. Only in the last few months have businesses started to rebuild inventories and employee pools. Consumer expenditures have definitely dropped recently, but they’re unlikely to plunge, as they would in a traditional recession.
For double-dips to happen there needs to be some kind of self-reinforcing loop that the economy has trouble getting out of. Similar to what’s happened in the housing market these past few years. Falling home prices lead to rising foreclosures, which lead to falling home prices and more foreclosures. The wheels on the bus go round and round!
So just how will we unequivocally know we are either in or out of a double-dip? The reality is we may not know. In researching this column, and of those who would put an actual number on it, I found economists predicting anywhere from a 5% to 25% chance that we will experience one. Of course, this is unscientific research, yet it speaks to the uncertainty across the field.
Perhaps the most notable of my findings was a survey conducted by the Philadelphia Federal Reserve. It asked forecasters about what they think the likelihood is of seeing three consecutive months of negative economic growth in the next year. The survey revealed that as the economy has slowed in the past few months, economists who responded felt the chance of a double dip recession was just 12%. Encouraging, but not guaranteed.
Finally, the New York Federal Reserve has a statistical model that predicts the odds of recessions. The model currently puts the odds of a double dip at 1-in-167. What does it all mean? Our slow growth economy is not likely to turn into a no-growth economy. That doesn’t mean, however, that more shouldn’t be done to help the estimated 14 million people who are out of work find jobs. Instead, it likely means that the worst case scenarios aren’t likely either.
Last year, I concluded my column on this subject by saying, “it’s clear the recovery still has a long way to go.” Now, a year later, to double-dip or not to double-dip still remains the question. I’m not an ice cream lover so I think I’ll pass. How I hope the economy does as well.
Chris Beagle, a realtor in Rehoboth and former mortgage officer, serves on the Board of CAMP Rehoboth. Email Chris Beagle