8 Problems That Could Trigger a Double-Dip Recession
Ben Baden and Rob Silverblatt
Why these lingering issues could send the economy reeling
With stock prices spiraling downward and treasury yields tanking, the market has been sending a clear message recently: The fragile economic recovery is in trouble. But just how bad is the outlook? In the aftermath of a bleak second quarter, experts are still divided about the likelihood of a double-dip recession. What's becoming clearer with each new report, though, is that the economy -- even if it doesn't double dip -- is steadily losing ground.
The economic souring is, of course, being spearheaded by a familiar cast of characters: An anemic labor market, a skeptical consumer base, a weak housing market, and a global debt crisis that threatens to overwhelm national governments, just to name a few. Further deterioration in even one of these arenas could be enough to trigger a double-dip, which is loosely defined as a period during which a recovery is interrupted by economic contraction, usually in the form of negative GDP growth.
For some experts, the prospect of a double-dip still seems distant. "I still think it's very unlikely that the economy will fall into a double-dip," says
For investors, a double-dip, if it materializes, would be a throwback to 2008, with a floundering economy punishing stock returns.
With that in mind,
In the aftermath of a recession that wiped out 8 million jobs, the lackluster labor market has perhaps been the biggest thorn in the side of a sustainable economic recovery. June's job report, which is due out Friday, will likely dampen the mood even further. Notably, the consensus prediction is that the report will indicate the economy shed jobs for the first time since last year. In 2008 and 2009, payrolls contracted in 23 out of the 24 months, but year-to-date through May, each month had seen positive jobs growth. Still, the losses expected in Friday's report will largely stem from a drawdown in the number of census workers employed by the federal government. Since these jobs were always expected to be temporary, their disappearance from the payrolls isn't much of a negative indicator. The bigger problem, economists say, is that even in months in which there was net job creation, the rate of growth has been too slow. Without robust job creation in the coming months, the weak labor market could help thrust the economy into a double-dip recession. "By the end of 2011, we can get into the low teens if things really come apart," Morici says of the unemployment rate.
In early 2009, President Obama introduced a first-time home buyer tax credit of
Expiration of stimulus.
One of Obama's first acts as president was to authorize a massive stimulus package that cost
At the G-20 summit, countries from around the world pledged to cut their deficits over time. Everyone agrees that it's a noble goal, but experts are torn over when it's appropriate to begin cutting spending. Many countries in
Most experts say it's not a question of whether taxes will go up in
A recent report by the Conference Board shows that consumer confidence is plummeting. In June, the group's Consumer Confidence Index dropped by nearly 10 points, its second-biggest one-month decrease in a year. The report also shows that consumers' assessments of their current situations and their future job prospects are turning increasingly negative. This has touched off concerns that a skeptical consumer base could stand in the way of a recovery. Still,
Poor consumer sentiment generally translates into stagnant spending levels. Recent data from the
European debt crisis.
For the time being, the
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8 Problems That Could Trigger a Double-Dip Recession
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