We don’t really want to brag about this. We wish we were wrong. But the MKCREATIVE blog was worrying about a double-dip recession before the three-foot-deep snows melted from the double-whammy of Nor’easters born by the eastern seaboard this past winter. The housing market, upon which so much of the US economy depends upon, was considered through the worst of the overextended subprime mortgage fiascoes that had flooded the market. Once the housing market stopped its freefall (leaving aside the political debates about government stimuli helping and/or not being big enough/too big…), the argument went, we could regroup and pick up pieces. Unemployment would also stop ballooning once people quit panicking about the housing market. And now that we are in the dog-days of summer?
Corporate profits are still up, but not as up as they were in late spring. Unemployment is not growing, but new jobs are created only at the speed of old jobs are lost – and no politician wants to factor in those who have given up or who are underemployed. So how are profits and bonuses heading up at all? They are heading up because corporations have slashed their workforces (costs), and have sold off their overstuffed inventories with which they were stuck when the economy collapsed in 2007-2008. That profit can not last, because the millions of unemployed have no buying power to stimulate a meaningful restocking of those now-depleted inventories. Derek Thompson of TheAtlantic.com does not see a real second dip looming, though it might feel like one: “Welcome to the slog. Corporate profit growth isn’t currently sustainable if companies pick up millions of workers quickly. (There’s your rock.) And healthy revenue growth for those same companies isn’t sustainable with 17 percent broad unemployment. (There’s your hard place.) In the short term, one thing is clear: this summer of corporate profits isn’t necessarily something to celebrate.”
On the other hand, 247wallst.com argued a month ago (with presumably some euphemism) that some fifteen corporate successes could stave off a double dip. Google was one of them, though, and people have not been enthusiastic about the internet alignment it created with Verizon. The site, which focuses on analysis for equity investors, is notably optimistic about its own economic sector. But when it turns to other sectors of the economy, the site admits some pessimism like “The jobs market is still atrocious.” And “The banks (including the U.S.) remain under pressure via taxation, regulation, reserve requirements, awful demand for loans, and on and on. Many savvy investors still expect the implosion of governments over the debt levels.” The slight-of-hand here being that the lack of pressure in terms of regulation, reserve requirements, and allowance of absurd loans is what got us here. But never mind.
One of the more pessimistic voices comes from David Rosenberg (from a company once called Merrill Lynch), who just last week argued, “If you don’t believe in a double dip, it’s because the first recession never ended.” (The story via TheHuffingtonPost.com, including a video of his interview, can be found here. Finally, and with a more balanced approach to the economy as a whole, CNNMoney.com met with a number of economists about the odds of a double-dip. All agree that the chances are about or worse than 20%, though none interviewed go above 30%. All also agree that about all the notable growth has been wrung out of cutting staff, selling off inventories, and/or using governmental stimulus spending. The question is whether we technically stay above 1% growth or not. Watch this excerpt of Nouriel Roubini‘s take on the economic doldrums and possibilities over the next couple of years:
Tomorrow we shall look at some of the ways nonprofits have weathered the storm thus far and kept their important work going. As for the double-dip, here’s hoping we got this one wrong…