Economist: The Chances of Recession and What That Means

The wild gyrations of the market last week have had many effects from day-to-day, but the underlying threat seems to be the fear that a double-dip recession is imminent.

There is not yet an overwhelming consensus that a double-dip is imminent or even likely. There is the usual gloom and doom from economist Nouriel Roubini, but he has been asserting that the double-dip is around the corner since the middle of 2009. The statements from the National Bureau of Economic Research suggest that there is perhaps a 25% chance for the recession to return this year, and roughly 10% think the economy has already entered a period of decline. The majority still insist that there is growth, but it is very limited and halting in nature. The fact is that recessions typically are declared after the fact in any case. If one goes with the standard definition of recession—two consecutive quarters of negative GDP growth—the United States  would not be considered in recession until the end of the first quarter of 2012 at the earliest, as the third quarter GDP numbers for this year will be positive (not by much but positive). So, does it really matter if the economy is formally in recession?

To many people affected negatively by the economy, it hardly matters what the situation is referred to. They are out of a job or  are watching their business slowly fall for lack of demand. The recession label is not needed to describe their level of economic distress.

The signs of true economic health will vary from industry to industry and the performance of the stock market will be a relatively minor indicator. Earlier this year, the market was surging and gaining, but the economy as a whole was not healthy. Now the bears seem to have noticed that and the market seems to be reflecting the economic reality a bit more. If there is to be some tangible progress in the economy, it will have to manifest in job growth, GDP growth and other factors suggesting that consumers and producers are back in the game. The majority of the population is not going to relax much in regard to the economy until there is progress in the job market—and that means adding at least 300,000 new jobs a month. The number of new jobs was a little more than expected last week, but it is still a far cry from this minimum number. To make a dent in the long-term unemployed there needs to be gains of at least 500,000 jobs. If that number were to be reached, the GDP data would soon reflect the growth and would be hitting the 3%-per-quarter minimum needed for real expansion.

Brian Shappell, NACM staff writer

Source: Chris Kuehl, NACM Economist

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