Remember when "double-dip" meant something good, like getting twice as much of that hard-shell chocolate dip on your ice cream cone? Now, because of our country's financial problems, and in spite of it being ice cream season, the term is more often associated with a relapse into economic recession. (Investors can find profitable companies - even in a recession. It's all about knowing where to look. See 4 Characteristics Of Recession-Proof Companies.)
TUTORIAL: Behavioral Finance
Though President Obama recently said he's not worried there'll be a double-dip recession, some pretty qualified people disagree with him - like prominent Yale economist Robert Shiller, who warns that the U.S. economy may be at a tipping point. Shiller is especially concerned about the recent uptick in unemployment because any further increase could indicate another recession. "Whether we call it a double-dip or not, I think there is a risk," he said in a June 9 article by Leah Schnurr of Reuters.
To New York University economist Nouriel Roubini, there's more than just a risk. He asserted last summer that a double-dip recession was already underway, citing signs such as ballooning budget deficits, rising unemployment, falling home prices, and greater loan losses in the banking industry. Here are five signs that Roubini was right and we're in a double-dip recession at this very moment.
1. Home Prices Keep Falling
At the end of the first quarter, overall home prices were nearly 3% below the previous bottom they reached in the first quarter of 2009. That means homeowners now have even less equity in their homes than at the height of the housing crisis, right after the three-year period when owners' equity in residential real estate dropped more than 60% from nearly $13.5 trillion to just under $5.3 trillion.
2. Small Businesses Can't Get Credit
Banks are much less apt to extend credit to small businesses than to large ones, which is bad for the economy because small businesses generate 60-70% of all new jobs. Small businesses that do manage to get credit are often charged interests rates in excess of 20%, whereas very large companies are frequently allowed to borrow for as little as a tenth of that cost.
3. Unemployment Has Worsened
Unemployment rose to 9.1% in May from 9% in April and initial jobless claims were higher than expected the week ending June 18, coming in at 429,000 rather than the 415,000 predicted by economists. Rising unemployment hinders the economy by forcing a greater number of people to spend less and the already cash-strapped state governments to spend more on jobless benefits.
4. Consumers Are Losing Faith
The general public has been feeling progressively worse about the economy for some time, if you go by the index of consumer confidence published monthly by the Conference Board. The index fell more than 5% between May and June alone, from 61.7 to 58.5, and it's nearly 50% below its July 2007 peak of about 111.9. Consumers have become more pessimistic about the labor market, too, the Conference Board also reports. (When the economy blows up, these funds offer some protection from major losses. See 8 Fund Types To Use In A Recession.)
5. More People Are on Food Stamps
The number of U.S. citizens on food stamps has been rising steadily for several years and stood at 44.2 million, or 14% of the population, as of February. That's a 67% increase since 2006, the year before the financial crisis, when 26.5 million people were on food stamps. The cost of the food stamp program, which is officially called the Supplemental Nutrition Assistance Program, or SNAP, spiked 29% to about $64 billion in 2010.
The Bottom Line
Numbers like these don't inspire much confidence and certainly do support the notion that we've slipped back into recession. But have we really? Many economy watchers insist the current downturn is merely a bump in the road to recovery and won't last much longer. According to the Federal Reserve, for example, unemployment should be well under 9% by the end of the year and could get below 7% in as few as two years. (Understanding the business cycle and your own investment style can help you cope with an economic decline. Check out Recession: What Does It Mean To Investors?)