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Double Dip Or Just One Big Recession

You hear the phrase double dip recession thrown around more these days. But maybe it's not a double dip we're headed for. Maybe we're still in the midst of one big recession that started in December 2007.

The National Bureau of Economic Research (NBER) serves as the official judge of when recessions start and when they end. They clearly called the beginning of the recession as December 2007. But interestingly, they have not yet called the end of the recession, although most economists called the end of the recession in October of 2009. Maybe the economists jumped the gun.

On the NBER website, they have some interesting material on how they determine the start and end to either an expanding or contracting business cycle. Consider the following material:

  • "In both recessions and expansions, brief reversals in economic activity may occur--a recession may include a short period of expansion followed by further decline; an expansion may include a short period of contraction followed by further growth."
When the committee met in April of this year, they were reluctant to call the end of the recession as the data was encouraging, but preliminary. Since April, the figures have only gotten worse.

It's possible that we never fully recovered from the initial recession, and the current slowdown is part of one larger contracting cycle. If you've been following the news at all lately, you know that the economy has slowed down and is probably just barely growing. At this rate, if the slowdown continued, we could tip back into a cycle of negative GDP.

In one sense, whether we're officially in or out of a recession really doesn't matter. The figures indicate that we're moving into either a very slow growth or slightly negative cycle. That's not good, and it's likely the financial markets will continue to provide us with a pretty rough ride until we get more clarity about our economic future.

All of this simply helps to reinforce the fact that it's tough to predict the future. Economic inflection points are very difficult to perceive when you're in them. That's why the NBER is reluctant to declare recessions or recoveries until well past their starting or ending dates. It's just too hard to tell when you're in the middle of it.

Bottom line. Assessing the impact of this great recession will take time. Don't jump to conclusions or bet the ranch on one particular economic outcome.

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