Is US Headed for Double-Dip Recession or Stable Economic Recovery?

An article by Varun Walia    No Comments

Is Recession Really Over?

If economic indicators can point to anything meaningful, then we can say that the road to recovery has not seen a dead end yet. Even the recent statements from the Fed suggest that the contraction has stopped and the economy is stabilizing. However, the National Bureau of Economics and Research seems to be hesitant in making any official statements, so there still might be some evidence that this recession is here to stay. On the contrary, many analysts from the Wall Street and few economists have made claims that the recession has ended almost a year back.

So, eyes and ears are on NBER, for official declaration that the recession has ended, and till then we should not get overly poised by the lame recovery in place. Obviously, there has been visible recovery from the worst that this recession has made us witness, but it may be too early to say that the economy is expanding again.

Recovery in Uncertainty

No doubt, investors are rejoicing the economic recovery, but at the same time consensus is building up for a deflated economy. Actually, these are the times of unusually high uncertainty, with equally convincing standpoints for a stable recovery and a long recessionary phase.

Scepticism may have come off from its highs after a long stable rally in the markets, but investor confidence is still lurking way behind, as the shock waves of the Great Recession still continue to haunt stock markets. Even the recent data is not sufficient for building up a compelling road-map of the markets journey ahead, so till uncertainty prevails, we will remain in an unsettling environment.

Consumer Spend Lurking on Jobless Claims

At best, investors should expect a ranged market, but they should be prepared for wild swings within a broad range. However, if the jobless rate continues to hold around 9% mark or inches up yet again then the situation may even get worse than before. As employment has a direct impact on consumer spending, it is not possible for the economy to expand or even stay where it is with such disappointing jobless rates. Consumers have restricted their spending as they are now focusing on savings, which is clearly visible from the June data that shows a 6.4% savings rate for American Households. At the same time, businesses are maintaining exceptionally high levels of cash. Impact of cash hoarding by households and businesses can be seen in GDP numbers, which have started falling again after a short pickup due to government stimulus.

Thin Line Maize

Altogether, we can say that economic recovery is dependent on consumer spending and employment scenario, and both of these will take time to snapback to old levels. Surely, the economy is healing, but a double-dip recession is a sheer possibility as the GDP is stalling at the brink of negative growth. Moreover, particularly this recession can be better understood as a continuous slump phase with small spurts of growth within its horizon.