The financial media and most of the investment community are haunted with the prospect of a second recession. This so called "double-dip recession" has occurred before in the United States, with the most recent example in the early 1980s. Here are some things you should know about the last double dip recession that occurred a generation ago.

TUTORIAL: Economic Indicators

Blink of an Eye
Part one of the last double-dip recession started in January 1980 and ended in July 1980. This brief six-month economic contraction was the shortest downturn since recordkeeping started in the 1850s, according to the National Bureau of Economic Research (NBER).

Since the NBER has to examine a number of indicators before declaring the peak or trough of an economic cycle, the start of the recession wasn't even declared until June 1980, one month before it officially ended. The same was true with the brief economic expansion that followed, which started in July 1980, but wasn't announced until 12 months later. The first part of the double dip recession was so brief that some economists don't even consider it an official recession and combine both downturns into one recession. (For related reading, see Recession: What Does It Mean To Investors?)

Seconds Anyone?
Part two of the 1980s double-dip recession began in July 1981 and lasted until November 1982. The 16-month duration of the contraction is about average for the 33 downturns recorded since 1854. Just like part one, the official start of the recession was announced in January 1982, about six months after it began. The end of the recession also suffered from timing issues, with an official announcement date in July 1983. The second part of the double dip was brutal for the United States with virtually every part of the economy sharing in the pain. The worst hit area was in the mining, construction and manufacturing industries, with 90% of all job losses in 1982 in these industries.

Unemployment Rate
The unemployment rate is a popular indicator that typically lags the economic cycle. The unemployment rate was at 6.3% in January 1980 when the first part of the double dip began and rose to a peak of 7.8% in July 1980. This unemployment rate also stayed stubbornly high during the 12-month recovery that followed. After part two of the recession began, the rate moved from the July 1981 level of 7.2% to a peak of 10.8% in December 1982.

The trend of employment coming out of the 1980s double dip recession demonstrates how difficult it is to get job growth moving again after a recession ends. It wasn't until June 1984 that the unemployment rate fell to 7.2%, the level when the recession began in July 1981. It stayed at 7.2% only briefly before jumping higher again and stayed in the mid-7% range for another six months. Our most recent recession began in December 2007 and ended in June 2009. The unemployment rate was reported at 5% in December 2007 and peaked at 10.1% in October 2009. It has since fallen to only 9.1% in August 2011, more than two years after the recession officially ended. (For related reading, see The Unemployment Rate: Get Rate.)

Finger Pointing
The 2007 to 2009 recession had many villains, but the 1980s downturn had only one, as many blamed Paul A. Volcker, the Chairman of the Federal Reserve, for the severity of the recession. Volcker considered inflation the main threat and pursued a restrictive monetary policy and high interest rates to fight this. Volcker denies that the Federal Reserve caused the recession and said in an interview that "underlying conditions and imbalances" in the economy would have led to one even without the policies that he implemented.

What Are Our Chances?
It is amazing how many prognosticators are out there declaring that a double-dip recession is underway, especially when you consider how long it takes the NBER to actually make this determination. There is little empirical evidence to support this claim, although it is clear that the economic expansion is slowing.

One economic report that doesn't yet indicate a downturn is the Leading Economic Index reported monthly by the Conference Board. The index was at 116.2 in August 2011, up 0.3% from the previous month. The report did note that the leading indicators point to rising risks and volatility, and increasing concerns about the health of the expansion.

Other economic indicators also support a slow expansion of the economy in the United States. The Association of American Railroads reported that railcar shipments in August 2011 are at the highest level in three years. GDP increased in the second quarter, albeit at an almost imperceptible rate. The Federal Reserve reported that industrial production in the United States rose at a 0.2% rate in August 2011, with manufacturing up by 0.5%. Many business leaders in the United States have reported little evidence of a recession in current business trends for their companies. These include Jeffrey Immelt, the CEO of General Electric (NYSE:GE) and top management at UPS (NYSE:UPS) and FedEx Corp (NYSE:FDX).

One explanation for the obsession with a second recession may be related to the prominent position that the stock market now occupies in the public consciousness, as many may be relying on the daily performance of the markets as an indicator of whether a recession is likely. (Find out where to turn when looking to invest in a tumultuous market. For more, see Industries That Thrive On Recession.)

The short term performance of the stock market should not be viewed as an omniscient indicator of a complex economy and instead be viewed as the collective sentiment of a small number of actors, many of whom may have ulterior motives when deciding to sell.

TUTORIAL: Economic Indicators: Factory Orders Report

The Bottom Line
Although there is a chance that the economy will slip into another recession, the market's obsession with this is probably making it more likely to occur. The media spotlight on this possibility is self reinforcing, hurting confidence and making it less likely that businesses will invest or hire.

Related Articles
  1. Stock Analysis

    4 Key Indicators That Move The Markets

    Educated investors need to keep their finger on the pulse of the economy, and watching certain indicators is a good way to do that.
  2. Savings

    The Worst Financial Problems Ultra-High-Net-Worth-Individuals (UHNWIs) Face

    Understand how the problems of ultra-high-net-worth individuals (UHNWIs) are different from ordinary problems, and identify the unique financial challenges they face.
  3. Investing Basics

    4 Iconic Financial Companies That No Longer Exist

    Learn how poor management, frauds, scandals or mergers wiped out some of the most recognizable brands in the finance industry in the United States.
  4. Investing

    The Enormous Long-Term Cost of Holding Cash

    We take a look into how investors are still being impacted by the memory of the tech bubble and the advent of the last financial crisis.
  5. Active Trading

    What Is A Pyramid Scheme?

    The FTC announced it had opened an official investigation of Herbalife, which has been accused of running a pyramid scheme. But what exactly does that mean?
  6. Options & Futures

    Terrorism's Effects on Wall Street

    Terrorist activity tends to have a negative impact on the markets, but just how much? Find out how to take cover.
  7. Economics

    4 Countries in Recession and Crisis Since 2008

    See which major world economies haven't recovered from the global recession in the early 21st century, including a long-stagnant industrial power in Asia.
  8. Economics

    What to Expect From Mortgage Rates in 2016

    Understand the factors that influence the direction of mortgage rates, and use this information to project what will happen with rates in 2016.
  9. Economics

    Why is Puerto Rico in So Much Debt?

    Learn about the origins and economic factors that led to the downfall of the Puerto Rican economy and what the U.S. government can do to fix the situation.
  10. Economics

    How The Unemployment Rate Affects Everybody

    Depending on how it's measured, the unemployment rate is open to interpretation. Learn how to find the real rate.
  1. How does the price of oil affect Russia's economy?

    During the second half of 2014, Americans celebrated a rapid decline in the price of oil and gas. Cheap oil has a similar ... Read Full Answer >>
  2. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  3. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  4. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  5. What economic indicators are important to consider when investing in the retail sector?

    The unemployment rate and Consumer Confidence Index (CCI) rank as two of the most important economic indicators to consider ... Read Full Answer >>
  6. How does the risk of investing in the industrial sector compare to the broader market?

    There is increased risk when investing in the industrial sector compared to the broader market due to high debt loads and ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  4. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  5. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  6. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
Trading Center