Few like the “double dip.”
“Seinfeld” brought attention to the chip double-dipper. George dipped a potato chip in dip, took a bite, and then dipped again. He was called for his unsanitary double dip.
Then there’s double dipping in government. An individual carries two government titles; or retires, collects a pension and still gets paid for doing his old job as a consultant. Taxpayers are justifiably outraged at this double dip.
Now the big question is: Will the economy experience a double-dip recession?
Forecasting where the economy will go in the coming months and years is a dicey proposition considering the many consumer, business, investment, local, state, national and international factors that come into play. But one clear negative now and peering into the future is public policy.
If politicians and government do not pull us into a double dip recession, they certainly are working as serious drags on growth. So, even if we don’t double dip according to the numbers, thanks to misguided policies, it sure could feel like a double dip. Indeed, it has started to feel that way already.
The last time the U.S. economy did the double dip was in the late 1970s and early 1980s. The economy slowed dramatically starting in the first quarter of 1979, and shrank during the second and third quarters of 1980. After growth bounced back in the fourth quarter and first quarter of 1981, recession returned and ran through November 1982.
Economists debate whether those two brief quarters of growth in 1980 warrant being labeled a recovery, with many arguing that the economy was a mess from early 1979 to the end of 1982. Nonetheless, that period received the ìdouble dipî label, and it was the only double-dip recession experienced in the U.S. post-World War II.
Recently, from the start of 2008 through the middle of 2009, real GDP shrank in five of six quarters. Since then, the economy grew by 2.2 percent in last yearís third quarter, 5.6 percent in the fourth, and by 2.7 percent during the first quarter of this year.
After such a long and steep recession, these recovery numbers are uneven and less than ideal, but any growth obviously is welcome. So, why worry about a double dip?
First, questions persist in the GDP data related to private sector investment, which is central to current and future growth. Real private fixed investment was negative for 13 of 14 quarters stretching from second quarter of 2006 through the third quarter of 2009. After a bump up in the fourth quarter of last year, fixed investment declined again in early 2010.
A big part of this investment dearth was about the housing depression that began in early 2006. But after private residential investment grew in the third and fourth quarters of last year, it fell once again by over 10 percent in this yearís first quarter.
For good measure, investment in nonresidential structures has declined for seven straight quarters now.
Second, the employment picture is far more worrisome than most experts have noted. While much of the emphasis regarding the June jobs report was on an increase of 83,000 in private payrolls and an overall decline of 125,000 due to the loss of temporary Census jobs, the real story lies in the data offered by the governmentís household survey, from which we derive the unemployment rate.
But the unemployment rate has fallen for two straight months now ó from 9.9 percent in April to 9.5 percent in June ó isnít that good news? Unfortunately, the rate fell for the wrong reasons.
The civilian labor force actually declined by 652,000 in June, and by 974,000 over the past two months. That means large numbers of people have dropped out of the labor market, either discouraged due to a lack of job offerings and/or sufficing to cash unemployment checks. At the same time, the number of employed declined for two consecutives months, falling by a total of 336,000. So, the unemployment rate declined because the labor force fell by a larger amount than did employment.
And given that the household survey better captures start up and small business activity, this is a very worrisome signal about the current state of entrepreneurship.
Finally, turning back to policy, no one should be surprised by lackluster growth or even declines in the entrepreneurial sector. After all, whatís the message entrepreneurs and investors are hearing from politicians?
Taxes are going up on many fronts. Regulatory burdens, such as in the areas of health care and finance, are steadily mounting, and with those regulations and mandates come rising costs. Energy policy ó from the deepwater offshore drilling moratorium to the push for climate change legislation ó seems specifically designed to diminish domestic production and hike energy costs. And trade policy is simply nonexistent under the Obama administration.
Meanwhile, economic stimulus via massive government spending and debt has been exposed, once again, as the complete fallacy it is. The American people realize this to a significant extent. According to a Rasmussen Reports poll of likely voters released on July 2, while 29 percent said last yearís big government stimulus effort helped the economy, 43 percent said it hurt and 24 percent said it had no impact.
If we avoid a double dip recession, it will be about a resilient private sector. If the double dip occurs, no mystery exists as to assigning blame ó politicians pushing bad public policy.
Keating is chief economist for the Small Business and Entrepreneurship Council. He can be reached at email@example.com.