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Thursday
Aug042011

5 Signs of a Double-Dip Recession

ABC News Radio(NEW YORK) -- Though Congress forestalled a default on the country's debt obligations, the faltering stock market and several recent economic indicators are causing economists to worry about a "double dip" recession.

Ethan Harris, Bank of America Merrill Lynch economist for North America, said he sees a 20 to 30 percent probability that the country will enter a recession sometime in the next year.

"The odds of a double dip are rising," Harris told ABC News. "The sad thing is that with more effective policy in Washington the risk of recession would be much lower."

Critics of this week's debt deal say the spending cuts will do harm to an already fragile economy.

Here are five signs that together show a double dip recession could be closer than you think:

1. Unemployment:  The labor market has been one of the most significant sore spots on the economic recovery, says Ed Kashmarek, economist with Wells Fargo. Some 25 million Americans are out of work and unemployment rates remains stubbornly high. Payroll company ADP reported that the private sector added 114,000 jobs in July, far short of what's needed to get the job market moving again.

2. Pullback in stock market:  Kashmarek says the drop in the stock markets in the past two weeks is another indicator of a double-dip recession. "It's a leading indicator historically because stocks are looking at future expected profits for companies," he said.

3. Real wage growth
:  With relatively higher gas, commodity and food prices, real wage growth has declined. June's jobs report showed a 0.1 percent drop in wages. Add inflation and that stalls real wage growth. That's problematic for a country in which consumption comprises 70 percent of GDP.
 
4. Factory orders:  Kashmarek says factory orders demonstrate how much businesses are willing to invest their capital, which has a ripple effect on workers they hire and spending across the economy. "Many businesses have capital now," he said. "If they're not willing to invest in an era with low interest rates, a lot of cash on balance sheet and tax incentives, then that's a problem."

5. Consumer confidence:  The Conference Board's Consumer Confidence Index, which had declined in June, improved slightly in July, but that was after an eight-month low. Harris said a number of combined global affects are increasing the risk of a recession. "The economy was already suffering the after-effects of the Japan crisis and the rise in gasoline price at the start of the summer," Harris said. "Now the debt crises in Europe are adding additional shocks to confidence."

Copyright 2011 ABC News Radio

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