Are We Headed for the Dreaded Double Dip?

With each passing week, the economic news gets a little worse.  Are we experiencing mere sluggish growth, or is it something more ominous?  It’s premature to answer that question, but here are several things we know today. 

First – U. S. economic statistics have recently adjusted…significantly downward.  It turns out the Great Recession of 2008-2009 was worse than previously believed.  The BEA (Bureau of Economic Analysis) underestimated GDP contraction for both years and now says that GDP contracted by 8.9% in 2008 instead of its initial estimate of 3.8%…and…by 3.5% instead of 2.6% in 2009. 

For 2011, plagued by an impaired real estate sector, nine percent unemployment, and budget/long-term debt issues, growth is limping along at an annualized rate of 1.3%.  American output has yet to return to its 2007 peak. 

Second – Europe’s economic growth is faltering.  Several countries are experiencing serious financial difficulties, and the contagion may spread beyond Greece, Italy, and Ireland to France and even Germany.  Euro Zone growth is now less than one percent with many countries experiencing unemployment well into double-digits. 

Third – Growth in emerging economies (China, India, Korea, Brazil, etc.) remains strong;  however, there are preliminary indications of a slowdown.  Keep in mind that these economies are export-driven and depend on the U. S. and Europe.  

Fourth – The Fed has “pledged” to maintain an exceptionally low interest rate environment until at least mid-2013.  No, it’s not a political ploy related to the 2012 election.  The Fed views the economy as weak and in need of support, hence “The Pledge”.  

Finally – Equity markets corrected and are exceptionally volatile.  This isn’t surprising.  Given the economy is slowing, one should expect a more challenging environment for equities.  We also enjoyed a strong run up in equities beginning mid-2009 until several weeks ago.  Part of the recent retreat is a pull-back from those highs. 

So…is it a double-dip?  Stay tuned as we watch economic developments unfold in the coming weeks and months.

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