I tweeted “The debt deal has been completed. Now back to our regularly scheduled double dip recession.” Of course I meant that somewhat jokingly, but I’m also serious. The economy is not in good shape, and it will likely get worse as 2011 progresses. Forget about the man-made government debt ceiling crisis we had for the last four months, the real troubling issue is our lack of growth in our economy and job creation that’s almost nonexistent.
Double dip recessions are “black swans” in economics. The last time we had a double dip recession was during President Reagan’s first term in 1981. Originally economists, in their ever correct ways, stated they could never happen (See my post: Why I Never Trut Economists or Weathermen).
In previous recessions they were short and recoveries sharp: Between World War II and 1990, the average rate of growth in gross domestic product (GDP) in the five quarters after a recession was 6.8%.
It can be said many on main street never left the original recession that started in December 2007. This is just a continuation of this trend after the artificial prop-up via fiscal and monetary policies that have failed miserably. Though technically this might be considered a new recession because of the way a recession is defined. This recession might occur too far from the first one that started in December 2007. Either way, every new data point being presented is increasing the chance for a recession. I suspect Friday’s unemployment rate and amount of new jobs created in July will be dismal at best and will confirm this trend.
Signs Of a Double Dip Recession
Regardless of the distraction we saw in Washington DC, we may already be in a recession. Here are the various signals summarized:
- The ISM Report came in at 50.9%. The lowest score in the past two years
- The yield curve is moderate to flat. The 10 year treasury bond yields only 2.63%.
- First quarter GDP was revised downward to 0.4%, and second quarter GDP was estimated to be 1.3%
- The Federal Reserve ended QE II in June, which ends the prop-up of various assets.
- Hard and soft commodities have increased in price and have not decreased; even with the softening of the economy this means more pain for consumers.
- The increase in commodity costs affects consumer spending which decreased 0.2% in June.
- Unemployment is currently at 9.2% and is expected to increase when the June 2011 numbers are released this Friday
- The U6 unemployment number is at 16.2% and the trend is increasing.
- The average unemployment length has ballooned to over 37.1 weeks. Also a poor reflection of future economic growth.
- Home prices are officially in a double dip
- There is risk that Italy is the next country to have credit problems. Italy is no Greece. Italy is a real country with a GDP that’s two times the amount of Greece, Spain and Ireland combined.
From an antidotal perspective: a Gallup poll released in April 2011 found 29% thought the economy was in a “depression” and 26% thought the original recession had persisted into 2011.
With my business I’m not seeing much growth, and from talking to my small business customers, they are stating the same thing. All I hear is they are treading water and don’t see business improving anytime soon.
Update: Unemployment came in at 9.1% and the U6 number came in at 16.1%, down from 16.2%. In July, the non-farm payroll 117,000. This was higher than what was expected. The expected consensus was 85k new jobs for July. So this news is better than expected, but still lower than the at least 200k new jobs needed monthly just to keep up with population growth.
Readers: What do you think? Do you think we are in a recession, and how are you investing in this environment?