Double dip a done deal?

July 9, 2010

UNEMPLOYMENT/

-Jane Foley is research director at Forex.com. The opinions expressed are her own.-

Earlier this week the S&P 500 was down 15 percent from its April 2010 high.   The ongoing debate on whether the U.S. economy is poised for a double dip recession can be linked with these falls.

At present there is insufficient evidence to conclude that the U.S. economy will fall back into recession, though there are signs that the recovery could be losing momentum.  A key question is whether the adjustment in asset prices seen since the end of April has been appropriate.

Proponents of double-dip imply that asset prices may have further to fall.  In contrast, die hard bulls suggest that equity valuations are looking cheap.  In the past few sessions, the bulls have been gaining the upper hand.

The reining in of government fiscal incentives and in many cases the implementation of austerity measures suggests that economic growth in most of the developed world will be constrained for the next few years.

The release a month ago of the much worse than expected May U.S. Labour report was followed by a bout of poor U.S. housing and confidence data  that had the effect of triggering a wide scale debate about the prospects for double dip recession in the U.S.

The guts of the June U.S. employment report did little to dissuade this speculation.  Average hours worked in June fell and 652,000 people gave up looking for work; during the early stages of an economic recovery the labour market usually expands.

That said the data were not bad enough to suggest that double dip is a done deal.  Private sector payrolls managed to expand by 83,000.  While this was less than expected an expansion in private sector payrolls tends to be a precursor to economic expansion.

Picture Credit: A person enters at a jobs center in San Francisco, California February 4, 2010. REUTERS/Robert Galbraith

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