Why Some Forecasters Are Concerned About A Double-Dip Recession

The economic news is not too bad, yet.

Still, most analysts acknowledge the economy is slowing. A few are even concerned the recovery may be headed towards another “dip”. Take a look at the data yourself and see what you think.

The Conference Board, the non-profit group that publishes the widely-quoted Leading Economic Indicators, is not particularly upbeat about the second half of 2010.  They expect GDP to only grow in the 1.5 to 2 percent range for the second half of 2010. (GDP is short for Gross Domestic Product and is the official measure of economic growth).

The Board highlighted the following trends as being troubling:

  • Weak consumer confidence
  • Slow job growth
  • Flat confidence levels among CEOs
  • Slow consumer spending,
  • Weaker investment growth
  • Significant cutback in government spending as the stimulus money runs out

In addition there has been significant re-pricing of credit risk. The Conference Board believes that the financial markets foresee lower growth prospects. Morgan Stanley agrees and states the 3% yields are seemingly priced for extremely weak economic growth.

Whether the nation slips back into a recession no one knows right now, but much of the financial and economic data being released is worrisome.

Always a harbinger of things to come, the market at the moment seems to have lost its steam,  as the 1 year S&P chart below shows.

Recall that the Bureau of Economic Analysis recently revised the 2010 first quarter GDP downwards to 2.7%. Here is the data for the last four plus years, courtesy of tradingeconomics.com.

Meanwhile the national debt continues its march upwards. Nine months into the budget year, the federal deficit has added another $1 trillion to the country’s now staggering $13.1 trillion in obligations. This trend is not expected to reverse itself anytime soon; the Obama administration is projecting that national debt will rise from 64% of national output to 77% by 2020. Whether our economy will hit the “credit wall” and precipitate an economic crisis is the topic of keen debate.

In 2010 the deficit will most likely reach 10.6% of GDP.  If you want to look at how the annual federal deficit as a percent of our country’s GDP, there is a interesting tool courtesy of usgovernmentdebt.com–although I cannot vouch for all the data found in their reports.

Another factor that could play into the double-dip recession scenario is the growing skepticism about the official unemployment figure of 9.5%.  Even the Labor Bureau pegs their highest figure at 16.5% (see the chart below).

Seasonally adjusted, Household Unemployment Rate

Source: Bureau of Labor Statistics

Don’t forget 8.5 million jobs have been lost since the recession began in December 2007; it will take some time to replace these jobs and get these people employed and spending again.

Private polling companies show unemployment at possibly 22% or higher.

Even home builders are concerned.  A modest revival in new home sales ended in May after federal tax credits expired.  Conditions are not likely to improve soon.   Builders have sharply scaled back construction in the face of a severe housing market bust. The number of new homes up for sale in May fell to 213,000, the lowest level in nearly 40 years.

Given current data, do you think the economy will slip back into negative growth–the dreaded double dip recession?

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