It seems the question of the moment is whether we will experience a “double-dip” recession, i.e., another episode of economic contraction. I don’t know, but I do object to the legions of commentators turning what was once a phrase conjuring in my mind’s eye an image of happiness on top of an ice-cream cone into a dismal pejorative directed at our economic outlook. The phrase is everywhere, usually followed by frantic urging for the Federal Reserve to do something, dammit. For example, from Bloomberg:
“The risks of a double-dip recession are steep enough to provide cause for worry,” said John Lonski, chief economist at Moody’s Capital Markets Group in New York, who said the odds of another economic slump are now about one-in-three, twice as high as earlier this year. “It calls for more remedial action by the Federal Reserve.”
But, the National Association of Home Builders, who always tries to paint a happy face on everything because it’s never not been a great time to buy a house, dismisses the “double-dip”:
“The slow pace of economic recovery and worries about job security are weighing heavily on the minds of potential home buyers right now,” agreed NAHB Chief Economist David Crowe. “As a result, the housing market is clearly in a holding pattern. That said, NAHB does not project that a double-dip recession is in the cards, and we are looking for employment gains later this year to help bolster sales activity moving forward.”
Maybe they should just sell the double-dip as a jamoca-almond-chocolate. They tried to spin the lowest new home sales month on record as something not all that bad:
“Today’s report, though not unexpected, is disappointing in view of the improvement in sales activity that we saw in June,” said Bob Jones, chairman of the National Association of Home Builders (NAHB)
Sales improvement in June? Indeed. From the all-time low in May.
Moody’s cautions at the ill-winds a double-dip recession would blow towards the housing market (mixed-metaphorically-speaking, that is), reported in the Wall Street Journal:
If the U.S. enters a double-dip recession, home prices could fall by another 20% before they stabilize in early 2012, according to a new forecast by Moody’s Analytics.
That compares to the baseline forecast that calls for another 5% decline with prices hitting bottom early next year. Housing economist Celia Chen writes that the odds of a near-term double-dip recession now stand near one in four, versus odds of one in five during the spring.
A quick search of The Economist yields a treasure-trove of 142 articles discussing the double-dip, presumably all of which consider the chances of another recession and not a trip to Baskin-Robbins. A Yahoo search returned about 24.3 million hits for the entry “double-dip recession”.
So, literally everyone is talking about it. But what is it? The National Bureau of Economic Research, the private organization upon which we generally rely to date our recession and contractions explains that a recession is a period of diminishing economic activity after a peak of increasing activity slows and becomes negative. They measure the economy like one might measure the acceleration of a ball thrown in the air. There is an increase that increases at a decreasing rate (negative acceleration) that ultimately reaches an apex and starts declining. The time until it hits the ground again is a recession. The metaphor doesn’t quite work, or at least let’s hope not. With the ball you get positive acceleration again on the way down. Then a bounce. After the bounce? There’s the double-dip.
What the NBER fails to measure is per-capita income. It measures aggregate economic activity, but in the United States for instance, if the economy fails to grow in aggregate by about 1%, i.e., at least as much as the population increases, then on a per capita basis, we are getting poorer. Even the good times don’t feel so good.
So, double-dip or not? It matters more for the politicians and politico-economists than for any rational observer whether the economy officially dips double or not. The bottom line is that the US, Western Europe and Japan have severe structural issues, not least demography, excessive debt, and in the US’s case, huge trade deficits. Whether in the immediate term we get a double-dip or not won’t substantively change the array of forces preventing return to growth on any sort of a sustainable basis.