Why We're Falling into a Double-Dip Recession
The past few months I have felt that we were at risk for a double-dip recession, primarily because I don't see anything that would spark and sustain strong growth in consumer spending and without that the economy is going to be very fragile. The past few days I have been getting the feeling that the double-dip may start soon. First there was the various European debt crises. Then there was Dean Baker pointing out that mortgage applications have dropped to very low levels, which to me points to very soft housing sales in the next few months which in turn could trigger another collapse in housing prices. Then there was the stock market getting into a pattern of wild daily swings of over 1%, which to me is always a sign that a new major trend is struggling to come out of its shell (I think these daily wild swings happen when the market as a whole no longer has clear vision of what the future holds and without stable expectations for the future the market reacts strongly to daily events). Then there was the news that in April consumer income rose at a healthy pace, but consumer spending did not. And then there was the horrible jobs report yesterday showing almost no growth in employment once you net out temporary census jobs.
And then there are people like David Leonhardt at the NY Times who think the prospects for the economy are looking so rosy that it's time to start cutting government spending:
Jobs Bill vs. Deficit, a Showdown in the Senate
When I read stuff where people saying the future looks bright for the economy the arguments just seem weak. For example, let's look at each of the arguments made in this piece. Argument number 1:
Since the recession’s nadir, in January 2009, the job market has improved at the most rapid pace since 1983. On Friday, forecasters expect the Labor Department to report that job growth continued to accelerate in May.He makes it sound like jobs have been growing steadily since January 2009, but if you look at this graph of total nonfarm payrolls it sure looks like jobs have only been growing since January 2010:
Corporate executives are becoming more upbeat, surveys show. Business travel has picked up. Silicon Valley firms are doing more deals. Nissan broke ground last week on a car battery plant in Tennessee, and Chrysler is adding 1,100 jobs at a Jeep plant in Michigan.Those are all good signs, but not really a slam dunk case for optimism. And that is it for Mr. Leonhardt's arguments for why we can stop worrying about economy and start worrying about the deficit. Convinced?