What the Double Dip Recession Will Look Like

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2. Unemployment

Unemployment would move back above 10% quickly. In the 1982 recession, the jobless rate was over 10% for ten consecutive months and reached 10.8% for two months. During this period, the manufacturing base had not been destroyed. The economy is now arguably worse than it was in 1982. Many Americans who worked in manufacturing before the recession cannot be retrained, and the factories where they worked will not be reopened. Many compan­­ies have recently adopted the policy that they will keep as much of their work-force temporary for as long as possible. This keeps the cost of benefits low and allows firms to fire people quickly and without severance. A hiring strike by American businesses would contribute to putting 200,000 to 300,000 people out of work per month. At the peak of the recession that just ended, there were nearly six job seekers for every open job, according to the Labor Department. The job market could return to that point.

3. Consumer Spending

One of the primary reasons that consumer buying activity did not grind to a halt at the beginning of the last recession was that people still had access to a huge reservoir of home equity loans most of which were taken out at the peak of the real estate market in 2005 and 2006. The New York Times recently reported that “lenders wrote off as uncollectible $11.1 billion in home equity loans and $19.9 billion in home equity lines of credit in 2009, more than they wrote off on primary mortgages, government data shows. So far this year, the trend is the same.” Retail activity was helped somewhat by the capital available on these lines of credit, so store closings were probably deferred to the latter part of 2008. With more than 11 million mortgages underwater, 24% of the national total, and several million more within a few percentage points of being negative, the consumer will have no cushion as the economy deteriorates over the next six months.

4. Consumer Confidence

Consumer confidence, the critical gauge of the activity that represents two-thirds of US GDP, will plummet again. The Conference Boards Consumer Confidence Index would certainly move back toward the all-time low it hit in February 2009 when it reached 25. Currently, the measure in most months is closer to 60.

5. Auto Industry

Auto sales, one of the primary barometers of consumer economic activity and manufacturing output, would probably drop back to recession levels.  People concerned about employment will defer car purchases. Annual car sales in the US were over 16 million in 2005 but dropped to just above 10 million in 2009. The car companies hope that domestic sales will rise to 11.5 million this year. In a double dip recession, at least one million of those annual sales would be lost.

6. Trade

The nominal balance of trade would almost certainly drop, probably to a deficit of $25 billion a month, as the US takes in fewer imports due to low demand for consumer goods and business inventory. Exports would also drop because an economic crisis in the US would spread quickly worldwide. This is because of the tremendous size of the US GDP in relation to that of any other country. The drop in imports would be a signal that business activity had slowed in China, the rest of Asia, and Europe. Demand for consumer and business goods would drop in most regions, forcing a nearly universal cut in jobs outside the US.