Here Comes Trouble: Stories from My Life

"Outstanding…Moore Triumphs! Publishers Weekly

Mike & Friends Blog

Dean Baker

Dean Baker is co-director of the Center for Economic and Policy Research

August 27th, 2011 9:40 AM

Double-dip recession is unlikely

As slow signs of recovery appear, fear over a double-dip recession are starting to fade out.

The latest fad among economic forecasters is to talk about the growing probability of a double-dip recession. They have raised fears that the economy will again go spiralling downward at a point where it has hardly made up any of the ground lost in the last recession. This is indeed a scary prospect. However the data suggest that the double-dip gang is off the mark in raising these fears.

Before reviewing the evidence it is important to remember who these economic forecasters are. Economic forecasters are not workers like dishwashers and cab drivers who are held accountable for the quality of their work. They can be wrong every day about everything and face little risk to their career prospects.

Go back to 2006 or 2007 and see what your most widely quoted forecasters had to say about the economy. Almost none of them noticed the $8tn housing bubble that was on the verge of collapsing and wrecking the economy. With very few exceptions, the word from the forecasters was that we had clear skies ahead.

If you thought that missing the biggest downturn in 80 years would be a strike against your record, then you don’t understand economic forecasting. There is no reason to believe that forecasters are any more knowledgeable about the economy today than they were four or five years ago.

Further decline unlikely

A recession means that the economy is actually shrinking. Generally the economy has gone into recession when the Fed raised interest rates to slow the economy in order to bring down inflation. The normal story is that higher interest rates lead to reduced purchases of interest sensitive items, most importantly cars and houses. Most post-war recessions were kicked off when car sales and house sales and new construction plummeted.

There seems to be little risk of a substantial decline in either car sales or house sales and construction, primarily because the levels are already so low. Car sales are currently running at a bit below a 13 million annual rate. By comparison, they averaged well over 16 million annually in the years before the recession.

It’s difficult to envision the sort of big dip in sales that can tip off a recession. Car sales are not likely to fall below a 10 million annual pace.

It is the same story with housing. In the years leading up to the crash, the country was building close to 1.9 million housing units a year. In recent months we have been building homes at a rate of fewer than 600,000 a year. How much lower would anyone think this number could go?

In short, we simply don’t have the basis for the typical recession in the post-World War II era. Both car sales and housing construction are already so low that they don’t have much room to fall.

Looking at the other categories of GDP, it is difficult to see the basis for the negative growth implied by a recession. Consumption of course is the biggest part of the story, comprising 70 per cent of GDP. We have seen slow growth in consumption through the first half of 2011 and it is difficult to see why that would not continue. The economy added 117,000 jobs in July. This is weak, but nonetheless positive.

Wages are roughly keeping pace with inflation. They fell behind a bit in the first half of 2011 because of the surge in energy prices, however with energy prices falling in the past two months; workers will see some boost to their real wage in the second half of 2011.

Equipment and software investment has been growing at a rate of between five and ten per cent. Since orders are typically made well in advance of actual investment, there is no evidence in the order data that suggests this number will turn negative. The government sector is shrinking, but only at a 1.0-2.0 per cent annual rate for a sector that comprises 20 per cent of GDP.

In short, looking at the issue more closely, it is hard to construct the double-dip story. The one exception would be if a collapse of the euro led to a Lehman-type financial freeze-up. However, this would require a degree of blundering that would be difficult to envision even from the European Central Bank.

However, the fact that a double-dip is not likely does not mean that we have good economic news on the horizon. All the signs point to several years of weak growth. At best the economy is growing at the 2.5 per cent rate needed to keep pace with the growth of the labour force, and it may be growing more slowly. This would mean that the unemployment rate will rise from its current 9.1 per cent rate.

This is in fact a truly awful picture. After severe downturns in the 1970s and 1980s, the economy came roaring back, growing at seven to eight per cent annual rates in peak quarters. This is the sort of growth that is necessary to quickly bring the unemployment rate down to more tolerable levels. 

Unfortunately, these sorts of growth rates are nowhere on the horizon. This is why the double-dip story is so pernicious. If a double-dip is treated as a realistic scenario then even the slow growth that we are likely to see looks good by comparison. Instead of being outraged over our leaders’ failure to produce respectable growth we end up applauding them for avoiding a recession. 

We can't allow the bar for success to be set so ridiculously low. We need real growth; avoiding a double-dip is nothing to brag about.

You must log in to comment.

You must be logged in to leave a comment. Log in | Register

My father, Francis (Frank) Moore, passed away this morning a few months shy if his 93rd birthday. He was a great dad I am blessed to have had him in my life. I...

Apr 20th
2:58 AM
Read More

Time to put the cuffs on Chris Christie -- not for the bridge scandal, but for this: Chris Christie's $300m pension proposal broke state anti-corruption...

Apr 18th
7:31 PM
Read More

George W. Bush Debuts New Paintings Of Dogs, Friends, Ghost Of Iraqi Child That Follows Him... www.theonion.com President Bush has a new hobby -- painting! --...

Apr 17th
7:28 PM
Read More

Big new story from David Sirota and Pando on top Christie adviser and appearance of corruption at New Jersey's pension fund: REVEALED: Gov....

Apr 17th
12:41 PM
Read More

FBI Uncovers Al-Qaeda Plot To Just Sit Back And Enjoy Collapse Of United States www.theonion.com WASHINGTON—The FBI announced today that it has uncovered a...

Apr 15th
3:28 PM
Read More

Revealed: Rahm Emanuel's top donor bought stock in Marriott just before it was awarded huge contract pando.com As schools are closed and pensions cut,...

Apr 9th
2:00 PM
Read More

I'll be at First Time Fest today in New York City at the screening of my first film, Roger & Me. Loews Village 7 at 12:30 pm. Come see it on the big...

Apr 5th
9:48 AM
Read More

Revealed: Rahm Emanuel cuts public pensions, diverts money to benefit campaign donors pando.com If you've read the financial news out of Chicago the last...

Apr 4th
2:19 PM
Read More

Please take a moment today to think of Casey Austin Sheehan, son of Cindy and Patrick, who was murdered by U.S. foreign policy in Sadr City, Baghdad ten years...

Apr 4th
2:00 PM
Read More

ICYMI - I've joined this "thunderclap" to support the Connecticut legislators who voted yes on last year's Act Concerning Gun Violence...

Apr 3rd
7:38 PM
Read More

I've joined this "thunderclap" to support the Connecticut legislators who voted yes on last year's Act Concerning Gun Violence Prevention...

Apr 2nd
8:27 PM
Read More

I am opposed to the death penalty, but to every rule there is usually an exception, and in this case I hope the criminals at General Motors will be arrested...

Apr 1st
3:55 PM
Read More

How Long Some in the US Will Survive Under New Health Law ...by Donna Smith www.michaelmoore.com Those who must access care to live and can afford it are not...

Mar 31st
10:13 PM
Read More

Last night, The Good Wife on the East Coast started 40 minutes late due to the overrun of the NCAA basketball game. If you had your DVR set for the show, you...

Mar 24th
5:41 PM
Read More

Watching films today, looking for the ones I'm going to pick for my film festival this summer. I (and a whole bunch of others!) have this thing we put on...

Mar 23rd
4:48 PM
Read More

When the U.S. Health Care System Keeps Killing, Who Cares Enough to Fight? ...by Donna Smith www.michaelmoore.com We have largely forgotten that people are at...

Mar 21st
5:56 PM
Read More

Tell the White House not to give up on Dr. Vivek Murthy's nomination as Surgeon General despite the ferocious opposition from the NRA: Don't give...

Mar 21st
5:38 PM
Read More

This criminal would never see a jail cell, nor would his cronies. In fact, they'd later be rewarded with re-election: Presidential Address on War with...

Mar 19th
9:40 PM
Read More

The crime of the century -- our invasion & slaughter in Iraq -- started 11 years ago tonite in this 7pm (ET) hour, March 19th, 2003: CNN Coverage of...

Mar 19th
9:08 PM
Read More

Washington’s Back-to-the-Future Military Policies in Africa ...by Nick Turse www.michaelmoore.com Nick Turse is an award-winning journalist, historian,...

Mar 17th
4:59 PM
Read More

"I think democracy is the most revolutionary thing in the world." -- Tony Benn, 1925-2014 Tony Benn in 'Sicko'

Mar 14th
10:07 AM
Read More

RIP Tony Benn, one of the UK's greatest leaders: Tony Benn, veteran Labour politician, dies aged 88 www.theguardian.com Former cabinet minister died at...

Mar 14th
9:53 AM
Read More

Please read this important story from K. Ford K.: Am I the Face of the New American Middle Class? www.huffingtonpost.com I began to feel I had slipped so low...

Mar 13th
2:24 PM
Read More

Yesterday Dianne Feinstein revealed that the CIA has been spying on the Senate Intelligence Committee. This is all about the report the committee has produced...

Mar 12th
6:48 PM
Read More

Health Care for All Colorado has brought Mercy Killers, a show written and performed by Michael Milligan about our murderous for-profit healthcare system, to...

Mar 10th
1:08 PM
Read More

Health Care Dramas that Sting and Why We Have to Watch ...by Donna Smith www.michaelmoore.com The realities Milligan has written into the show cut deep into...

Mar 10th
1:02 PM
Read More

Did you know the Lehrer Newshour on PBS has been produced for 20 years by a company owned by conservative cable billionaire John Malone? Me neither. After...

Mar 7th
8:39 PM
Read More

Mr. Obama, if int’l law is so damn crucial . . . | RootsAction.org act.rootsaction.org The Russian intervention deserves criticism. But let’s be clear. The...

Mar 6th
1:21 PM
Read More

Enron billionaire John Arnold thinks everyone should believe him when he says we've got to cut pensions because he's so incredibly rich: John...

Mar 5th
4:20 PM
Read More

Subscribe to Mike's Blog RSS

Click here to suggest an article

Mike's Blog

See More Blogs

Vew the archives

View older articles