What The Double Dip Recession Will Look Like In 2011

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A Gallup poll taken last month showed that confidence in the economy has fallen to its lowest level since March 2009, which was near the low point of The Great Recession.

A growing and vocal minority of economists believe that there will be a double-dip recession primarily because of the intransigence of high unemployment and the rapidly faltering housing market. The notion of a “jobless recovery” has been around since the recessions of the 1950s and 1960s. It is a concept built on a relatively simple idea: Employment lags during a recession but it is always part of a recovery cycle. Production rises as businesses see the end of a downturn and anticipate improving sales. They are reluctant to hire new workers until the recovery is confirmed, but once it has been, hiring picks up.

The 2008 – 2009 recession was – if it is indeed over – different from any other because of its depth and its causes. The first trigger was the drop in housing prices, which robbed many people of their primary access to capital. As that access disappeared, so did the availability of credit. Consumer buying power evaporated and businesses cut inventory and production. Joblessness rose. Finally, consumer confidence plunged.

The last downturn was so great that in some months more than 500,000 people lost jobs. The unemployment rolls are now more than 14 million and, perhaps more gravely, over 6 million people have been out of work for over 27 weeks – which means they may no longer be eligible to receive unemployment insurance benefits in early 2012. This segment of the population has already begun to add to the number of indigent Americans and will continue to do so unless they can find homes with friends and family.

The second dip of the recession, according to economists and the federal government, is likely to begin within the next two quarters.

Unemployment claims are running well above expectations, recently passing 400,000 almost every week. The four-week average of initial claims rose 3,750 to 414,750 this week. August unemployment figures showed the economy added no jobs last month. There is nearly no job creation in the private sector, and public sector employment continues to drop. Real estate prices are still falling, particularly in the hardest hit regions such as California, Nevada, Florida, and Michigan.

The federal, state and local governments are in no position to lend assistance to businesses, most of which lack access to capital. President Obama recently proposed spending $447 billion on job creation, but the Republican drive for austerity may well keep the President’s proposal or any like it from becoming law. Similarly, banks are not prepared to lend to small businesses, especially those with modest balance sheets and relatively low sales.  This presents a problem for employment since companies with less than one hundred workers have traditionally been the largest creators of jobs.

This is what a double-dip recession will look like.