Earlier this week, I was quoted on Talk Business.net as questioning the relevance of a “double-dip” recession. There are several reasons that I take that position.
First, The Business Cycle Dating Committee at the National Bureau of Economic Research has laid out clear criteria for defining a recession. They cover a broad range of economic measures, including production, income and employment–not just quarter-to-quarter movements in GDP. In fact, the Business Cycle Dating Committee has never defined or declared that we’ve seen a double dip recession. The chair of the Committee, Dr. Robert Hall has recently referred to the recessions of 1980 and 1981 as the closest thing he’s seen to a “double-dip,” yet the Committee decided at the time to define two separate recessions (See A ‘Double-dip’ Recession Defined).
Another reason that I question the current danger of a double-dip recession is that most economic indicators continue to show a moderate rate of recovery in the economy. The buzz about a double dip recession seems to have intensified following the release of the June employment report, which was somewhat weaker than expected. It is never wise to put too much emphasis on one month’s data, and in this case it can be misleading. As shown in the chart below, private-sector employment has shown increases in each of the past six months.
Total employment has been subject to fluctuations in Government employment due to the hiring of temporary workers by the Census Bureau. When the report on May employment came out, many media sources pointed out that the strong monthly showing was entirely due to Census hiring, with private sector employment falling. Subsequent revisions to the data now show that private sector employment did increase in May, albeit only slightly.
One of the reasons that the June employment report looked so discouraging was that the Census Bureau laid off many of the workers it had hired in earlier months, so that total employment declined, on net. Yet private sector hiring showed its sixth consecutive month of increase.
Evidence from previous recessions–particularly the two most recent recessions–shows that employment tends to be a lagging indicator, picking up only slowly during the early stages of an economic expansion. So far, we’ve seen total growth of about 900,000 jobs during 2010. This is not consistent with a robust rebound, but it does indicate a clear sign of a turnaround in the job market.
Meanwhile, the other key indicators that are considered by the Business Cycle Dating Committee–industrial production, real income growth, and total sales–are all showing patterns of renewed strength since the middle of 2009. The economy is recovering, but it’s looking like this recovery will follow a pattern similar to the last two “jobless recoveries.”