And now for something completely different. Nah, not really. Time for some financial stuff. This time – what causes double dip recessions and what is the likelihood that we’re headed for one? In this first blog of a new series, I will examine the characteristics of double dip recessions, and discuss them from an historical perspective to show how rare they really are.
Many people fear that we are headed for a double-dip, but based mainly on a lack of consumer confidence, and not necessarily based on a pure economic data. For example, jobless claims spiked last month.
According to an Associated Press article, jobless claims rose “sharply”, indicating that layoffs are still happening. Many economists believed that the government’s official numbers might be artificially high in terms of job creation, because the government touted several million jobs created, but merely on a very temporary basis. Therefore, perhaps due to the falloff of census-related jobs, we are seeing a spike in jobless claims.
For this reason and many others, people believe we are headed for a double-dip, but first of all, what is a double dip recession, and what causes them?
Speaking by the book, a double-dip recession is when GDP growth starts negative (the initial recession), then increases again as the economy recovers, but finally the GDP goes negative again in the subsequent quarter. According to this article <http://www.minyanville.com/businessmarkets/articles/Kostohryz-double-dip-recession-recovery-obama/1/8/2010/id/26285>, double dip recessions have only occurred three times in American history since 1854 out of the 33 economic recessions since that time: in 1913, 1920, and then again in 1981.
But what has caused them historically? The answer lies in the nature of economies in general, which grow in a cyclical fashion. It takes a complete reversal of “inertial forces” to cause a double-dip recession, and this would mean that the economy would have to stop dead in its tracks very early in the recovery phase.
Apparently the chances are pretty slim that this will happen to this economy.
In my next blog, I will discuss more about double dip economies and the exact chances that our economy will fall again.