Are We Headed for a Double Dip Recession in 2013?

Do you think we are headed for a double-dip recession in 2013?  Technically a recession occurs when business cycles retract, evidenced by down consecutive quarters of GDP, or a 12-month 1.5% or more rise in unemployment. The most recent recession officially started December 2007 and ended June of 2009. I blogged about this topic about a month ago, but in light of the coming election and some new financial statistics I wanted to cover it again.

This past week it has been reported that home sales continue to increase; that is a good sign. However, the fact that America’s largest companies are getting ready to report lower quarterly sales is of great concern. Manufacturing output is a good indication of how industry is doing, and it was modestly increasing this past winter, leading to some guarded optimism, but for almost the last 6 months it has decreased to Spring 2009 levels. So this new estimate is really bad news. Gross Domestic Product (GDP) tracks the size of our economy by calculating the total dollar value of all goods and services produced over a specific time period in comparison with the previous quarter. GDP growth was at 4.1% about 9 months ago, this year slumping to 2% in the first quarter, and to 1.3% for the second quarter. There are a couple of good indications: US Consumer Spending is currently at 84.00 compared to 64.00 a year ago, a 31.25% increase. For 2012 we have seen a general increase, peaking at 96 in March, then it was erratic with a sharp drop in July. Since then we have seen a gradual increase. Economists watch consumer spending trends to try to track their confidence in the economy. The more confidence consumers have, the more willing they are to spend money. US Household Debt Service as a percentage of people’s disposable income is at 10.69% (June); it has been steadily decreasing from its 10-year high of about 14% in the 3rd quarter of 2008.

It seems as if American consumers are borrowing less and saving more. However, the Federal Government doesn’t seem to be catching on to reality yet: if the Federal Deficit reaches the $1.1 trillion projected by the Congressional Budget Office to be $1.1 trillion for 2013, this will be 5 years in a row that it has exceeded $1 trillion, and this doesn’t include all the money our Federal government borrows, adding to the US National debt which now exceeds $16 trillion. The outcome of the presidential election is being closely watched since both candidates have different approaches to solving these recession financial issues.

From last Friday’s article about unemployment, these mixed numbers don’t bode well for the economy either:

  • Positive: Unemployment DECREASED in September to 7.8% from 8.1% in August: Is this a good indication of improvement? Any indication of positive change is good, and this is lowest rate since January 2009. However, this ‘Official Unemployment’ rate only tracks those who are without jobs and have actively sought work within the past 4 weeks. Since this statistic does not track all people who are not working, some websites report that the ‘Real Unemployment’ rate is about 15% when all able-bodied people of working age are considered. For a historical perspective: The unemployment rate during the Great Recession peaked at 10.10% in October 2010. In 2012 it has varied in the range of 8.10% – 8.30%, so we are not seeing a lot of change this year. It could be worse when you consider that during the Great Depression it peaked at about 25% in 1933.
  • Positive: Monthly change in non-farm payrolls INCREASED: 114,000  jobs were added in September, compared to 96,000 new jobs in August, and 141,000 in July.
  • Negative: Initial Jobless Claims for Unemployment Insurance INCREASED: 365,500 4 week rolling average from 364,750. Looking back 12 weeks, the average was 366,250; 6 weeks ago it was 375,750. This number is much better than it was in 2009 when it peaked at over 650,000. In 2010 we saw a decrease from nearly 500,000 early in the year to the low 400,000′s. In 2011 the claims were in the low to mid 400,000′s, but since October of 2011 they have been below 400,000. The lowest we have seen this rate in 10 years is 282,000 in January of 2006, and the earlier part of the last decade we saw the average similar to what we are seeing now. During the Great Depression from 1929 – 1941 there was not the same level of unemployment insurance that we have today, although unions may have had some. It wasn’t until the Social Security act encouraged it in 1935. Today we have the Federal Unemployment Tax Act (FUTA) tax to fund state agencies.

In conclusion, I remain optimistic about our overall economy in the long run, based on what I read and hear, yet in the short-term, we may have some economic setbacks. What do you think? Please give us your feedback by commenting below.

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