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Are We About to Double-Dip?

The economy is showing scary signs of sliding back into recession, but economists say we're not there yet.

The news about the economy is not good.

But you probably already know that.

It seems that all you hear about lately are downgrades, precarious stock market dives, persistently high unemployment, and debt crises in Europe. In fact, a lot of people are starting to say that the news about the economy sounds an awful lot like it did in 2008, when the United States and the rest of the world fell into a debilitating recession that it still has not recovered from.

So, are we heading for a double-dip recession that could be deeper, longer and more painful than the last?

Potentially, some economists say, but we’re not there yet.

Steven Lanza, executive editor of the Connecticut Economy, a quarterly publication that looks at economic issues and their effect on the state, and a professor of economics at the University of Connecticut, said that the U.S. economy is “basically treading water,” and has been for the last few years.

Lanza noted that although the U.S. economy is growing, it is doing so at a much slower rate than normal, while dangerous economic factors like Standard and Poor’s downgrade of the U.S.’s credit rating or fear of mounting debt crises in Europe could be enough to push the fragile economic recovery over a precipice.

“It’s far too slow to make up for the lost ground that’s happened since the recession set in,” Lanza said of the U.S. economy’s meager economic growth. “It’s not anywhere near enough to keep up with the natural growth rate of the labor force, let alone to reduce the unemployment for those who have lost their job, and that’s why things just feel so awful out there.”

Economists define a recession as a drop or contraction in a nation’s gross domestic product – the sum total of all goods and services, including property, produced by a nation – for six or more months, or two economic quarters. By that standard, the U.S. emerged from the last recession in June of 2009, when the economy finally started to grow again after an 18 month period of decline, but the rate of growth it has posted since has been significantly slower than the typical “healthy” U.S. economy can produce.

According to the U.S. Department of Commerce’s Bureau of Economic Analysis, the U.S. economy posted a 0.4 percent GDP increase in the first quarter of 2011, and 1.3 percent growth in the second quarter. The Bureau of Economic Analysis attributed the GDP growth in the second quarter of 2011 to “contributions from exports, nonresidential fixed investment, private inventory investment, and federal government spending,” but noted that those gains were “partly offset” by negative spending at the state and local level.

If the U.S. were to slide back into a recession, according to Lanza, one possible cause could be a lack of federal spending to prop up the economy.

In 2009, when the U.S. was mired in its last recession, newly inaugurated President Barack Obama made the passage of the $787-billion American Recovery and Reinvestment Act one of the first pieces of legislation he signed into law, on Feb. 17, 2009. Although politicians and the general public might be split on the act’s merits and successes, most economists credit the billions of dollars the bill pumped into the economy as helping to end the recession and put the economy on a path toward recovery.

But as lawmakers in Washington spent the better part of the past few months haggling over the merits of raising the federal debt ceiling, and Republicans now in control of the U.S. House of Representatives, a further dose of federal economic stimulus does not appear likely anytime soon.

“That’s a big risk to the economy, especially when things are as tenuous as they are now,” said Lanza, who said the American Recovery and Reinvestment Act helped many state and local governments offset and forestall painful cuts.  “We are not in self-sustaining recovery mode by any stretch of the imagination, and for the federal government to basically call it quits is not a good sign for the economy.”

Christopher Ball, an associate professor of economics at Quinnipiac University, said that although the economic news lately has been dire, it is not time to panic – yet.

“Our job numbers look a little better,” said Ball. “I see us sort of standing on the edge (of another recession), whereas we were standing many feet away several weeks ago.”

Ball said that concerns over the federal government’s debt level, similar concerns with the debt level of many European countries, and the partisan gridlock and squabbling by Congress over raising the debt ceiling only exacerbated weakness that were already present in the economy.

“I think we’ve got real problems. I don’t think it is just perception, I think we’ve legitimately slide up to the edge of another recession,” Ball said. “I think the problems are more substantial. If Europe continues to have banking problems, which it looks like it will, and continues to have major growth problems…than those are real dampers on our ability to export over there.”

When asked how a slide back into recession might be avoided, Ball said the federal government and the Federal Reserve had used up all its “normal tools” to correct the economy – stimulus spending, holding interest rates down, and purchasing government bonds – and that the only tool the government had left at its disposal was to “fix the budget problem.”

“We need a substantial and credible budget agreement in terms of solving some of our longer term fiscal problems,” Ball said. “If they fail to do that and just make it a political game on either side of the aisle, I think that uncertainty will just leave us kind of flat.”

But the economy is not in the tank yet, at least at the local level, according to John T. Lund, chief financial officer of Rockville Bank. Lund said that a lot of the “blame” for the last recession and the economic downturn has fallen on the banks and a tightening of the credit market, and well that may be true for larger international banks, he said that local community banks have been able to avoid the same pitfalls.

“We at the community banking level, if you need to borrow, we're still willing to lend,” Lund said. “…It's a sign that the community banks have made smart business decisions. The large commercial banks have made some bad decisions, but the community banks have avoided it."

Lund also offered another piece of advice – turn off the news.

"At times we want to tell people to turn off the news shows because they create more angst than is really necessary,” he said. “The federal statistics do not always apply to us at the community banking level because we have made good decisions.''

Although there is still plenty of reason to be concerned about the impact of another recession at the community level, according to local officials.

Manchester General Manager Scott Shanley said that Manchester, like a lot of local governments, still has not completely emerged from the recession of 2002, let alone regained any of the ground it lost in the last recession, and is bracing for the affects of the loss of federal stimulus aid at the end of the current year. Another recession on top of it that, he said, could result in additional cuts in state and federal funding, which would be disastrous.

"We never even regained where we were then," Shanley said. "And we’re still continuing to cut back in reaction to the current recession.” 

It might not be a silver lining, but Shanley said the economy has been stagnant for so long now that people don’t expect it to get better overnight, and are prepared for the worst.

“I had hoped that by 2012 our economy would be seeing some brighter light, but it’s looking now like it will be 2013 or 2014 before things start to look up,” he said. “I think we’ve been in this recession so long now that I’m beyond the worried stage and beyond the anxiety stage. This is just the way it is.” 

R Eleveld August 16, 2011 at 03:53 PM
Steve, inflation is classically defined as too many dollars chasing too few goods. The modern def. is a period of rising prices. The latter is the result of the former. An example of inflation is you have $1MM and 1MM widgets so the price is $1 per widget. If the amount of money increases to $2MM for 1MM widgets the price increases to $2. That is a very simplified example of money supply inflation. See the Wehrmacht Republic. Fuel prices are not inherently inflationary because they rise and fall, and they do fall, and based upon recent data will continue to fall for some time. Also when prices rise, efficiencies increase so you use less fuel and the funds used for fuel declines mitigating the effect. I will grant there is too much speculation in the markets, but that can be staunched by increasing margin requirements. Inflation of good and service are generally not considered an intransigent inflationary factor until they stick for a period of time. You see the price of fuel rises and falls, as does the price of almost everything else. However wage inflation, a period of time where wages continue to rise is far more intransigent. You can't say Betty Lou, this month I will pay you $500 per week, and in 3 months, I will pay you $450 per week, and later $550 per week. Increased productivity can and does offset increased money supply and wage inflation. So increased productivity actually is anti-inflationary as the cots on a unit basis declines.
Steve Marriott August 16, 2011 at 06:18 PM
@Steve Kanaras "I am not an economist, but I can't see how this assessment of the economy can be made without even a mention of fuel prices." Excellent observation and that was my whole point about focusing on picayune things like like how economists define "downgrade" and technical distinctions between a "double-dip" and "recession". You don't need to know much about economics when prices are up every time you go to the store and joblessness is hitting your friends and family and every time you put on the news there's another trillion dollars added to our debt. The use of technical jargon and the attention to all the little nuances is a merely an attempt to persuade mouth-breathers like us that this subject is too complicated for our grasp. It's an attempt to not only deny us access to debate it, it's an attempt to intimidate us out of the political spectrum as well, and this is the important agenda behind all this. They're simply trying to lock us out of the argument. It's like Al Gore's "scientific consensus" on global warming. How dare you challenge the experts!? Thid locks you out of the argument and meanwhile, they have misdirected attention away from the very basic (to use the very phrase Jim G accuses me with) fact in this case that the growth of our government is out of control and has failed us all.
CTPati August 16, 2011 at 06:52 PM
Steve D. is exactly right about Jim being an Alinskyite. Jim probably views the "progressive" but evil W. Wilson as a good president! The progressive Jim can't see what another smarter Democrat enunciated last night on Hannity: "The problem for liberal government, as a liberal, I will tell you is proving that it works." It does NOT work, *unless* your goal is that of Obama and other "statists"--meaning most all of today's Democrats--which is to make as many Americans as possible DEPENDENT upon the government to be their "daddy"! Reagan and the founding fathers understood the disaster that would result from BIG government, which was enunciated very simply by Margaret Thatcher: "The problem with socialism is that eventually you run out 
of other people's money."
Sami Mehmed Jr August 16, 2011 at 09:01 PM
@CTPati, Absolutely on target. Problem is as follows: The federal government unless the mix in Congress and the Senate change, our loving state CT, and local towns will continue on until eventually we the people actual run out of money. Greed, unions collective bargaining, stupid projects, etc. Unfortunately, its the kids growing up today that will bear the most pain if this occurs. Also most politicians are infected with the virus of being Daddy using others money. Serve one term and receive retirement benefits for life. I am not against helping those in need / providing training, but those in need need to step up and help themselves and take responsibility. Hard choices are a-head and all presidential candidates don't look very appealing at this moment in time.
Steve Marriott August 19, 2011 at 12:39 PM
Jim G, The problem with your experts and their math is that they believe in a false school of economics know as the "Keynesian School." Much of the data and numbers they come up with are garbage. It's a "simple" (like all my arguments, right Jim?) case of garbage in, garbage out. Keynesian economics is it's based on the ignorant idea that inflation is good, more debt is the solution to debt and wealth can be created out of thin air like magic with a printing press. This idea sees the economy as nothing more than a child's Monopoly game. These infantile ideas are wrong and were dispelled years ago by people like Mises, Hayak and Hazlitt without math and numbers. In the mid 1800's Frederick Bastiat did an excellent job debunking these ideas in his classic essays "The Broken Window" and "What is Seen and What Is Not Seen." But you've probably never heard of them because they not taught in "ivy league" schools because they are not conducive to promoting omnipotent government. http://bastiat.org/en/twisatwins.html Here's your expert former Princeton Economic Chairman BEN BERNANKE declaring unequivocally that there is NO housing bubble and the economic fundamentals are sound. http://www.youtube.com/watch?v=MnekzRuu8wo You are right Jim, we "shur 'nuff." don't need numbers and data like that. It really seems like all that word readin' and book learnin' your hero Bernanke did hasn't worked out very well for us has it?

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