Are We Having a Double-Dip Recession?

 Popular Economics Weekly

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What if we have a ‘double-dip’ recession; i.e., when and if the US economy returns to negative growth in the fourth quarter, or even in Q1 2021? Notwithstanding the record 33.1% annualized snapback in real gross domestic product growth in the third quarter of this year, the U.S. economy was still 3.5 percent below its previous peak in the fourth quarter of 2019, as I said recently, and the pandemic has to run its course before GDP can return to its previous highs.

Except for the 4 percent peak-to-trough decline during the 2008-09 global financial crisis, the current 3.5 percent gap is as large as that recorded in the depths of every other post-WWII recession.

That is a lot of growth to make up in the midst of this pandemic, and we have had double-dip recessions before; the last in 2008 per the above GDP graph. It happened then because President Obama decided in 2010 that it was more important to begin to pay down the national debt, rather than spend more in basic services to bring the US economy out of the Great Recession, the worst one since the Great Depression.

Economist Stephen Roach in Project Syndicate says, “Consequently, it is ludicrous to speak of a U.S. economy that is already in recovery. The third-quarter snapback was nothing more than the proverbial dead cat bounce—a mechanistic post-lockdown rebound after the steepest decline on record. That is very different than the organic, cumulative recovery of an economy truly on the mend. The U.S. remains in a deep hole.”

The real problem with a possible double-dip recession is that job creation will slow down from its current pace, leaving maybe 20 million still dependent on continuing government support.

So preventing another double dip would mean much more government aid that extends unemployment compensation programs scheduled to end this year, if we have learned anything since 2008. as well as more aid to fight the ongoing pandemic that former FDA Commissioner Scott Gottlieb now says is on track to infect 30 percent of Americans.

Reuters

Though the claims report showed the number of people receiving benefits after an initial week of aid declined 299,000 to 6.071 million in the week ending Nov. 14, that was because many have exhausted their eligibility, which is limited to six months in most states.

In addition, a record 4.509 million workers filed for extended unemployment benefits in the week ending Nov. 7, up 132,437 from the prior week. These benefits as well as those for gig workers and the self-employed will lapse on Dec. 26.

The real problem is the lagging consumer spending and services sector of the economy, where spending is down some 30 percent from January and lockdowns are being re-instituted in many of the largest states.

“Services consumption,” says Roach, “which makes up over 61% of total US consumer spending, is a different matter altogether. Services accounted for fully 72% of the collapse in total consumer spending from January to April. While services have since partly bounced back, as of September, they had recouped just 64% of the lockdown-induced losses earlier this year.”

There are now 93,219 COVID-19 patients in U.S. hospitals, according to the COVID Tracking Project. The U.S. leads the world by cases, at 13.2 million, and fatalities, at 257,920, according to data aggregated by Johns Hopkins University.

How can we know when economic growth will return until sometime next year when the vaccines are available and begin to be administered to all Americans?

Harlan Green © 2020

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