Is the U.S. economy heading for a double-dip recession?

October 5, 2011

An ethnic Albanian child holds an ice cream cone during some traditional games in the village of Belobrad, June 15, 2007. REUTERS/Hazir Reka Is the U.S. economy heading for another recession?

Two investment strategists who spoke to a group of Thomson Reuters brokerage clients at a conference in Phoenix on Tuesday say the chances are slim. Despite the bear market blues, David Joy, chief market strategist at Ameriprise, says a double dip recession is unlikely. The U.S. is destined to be in two percent growth environment for the foreseeable future — “or 2.5 percent, if we are lucky,” Joy says.

Rick Robinson, regional chief investment officer at Wells Fargo, who is based in Scottsdale, Arizona, told attendees the chance of a recession in the U.S. is about 35 percent. However, the construction and manufacturing industries in the U.S. are operating at “Depression-like” levels, he says.

The downturn in equities presents a long-term buying opportunity in U.S. as well as foreign stocks, Joy says, but he notes that investors need a time horizon of at least three years. “If you have a five-year time horizon, even better,” he says. When asked when the Dow Jones Industrial Average will hit 20,000, Joy says it won’t happen until 2025. “I hope I’m wrong,” he quips.

Robinson says the 20,000 threshold may be reached even sooner, but first the U.S.  economy needs to deal with current credit issues — for example, municipalities are cash-strapped and banks are holding bad mortgages. That deleveraging will take five to seven years to work its way through the financial system, he adds.

The silver lining? While stocks are in the dumps, the financial industry is in decent shape, Robinson says. “We don’t think this is like 2008. The banks and the government have had three years to address their balance sheets. Banks are better capitalized than they were in 2008,” Robinson says.

While the global economy is sluggish, a bigger worry for the markets is more psychological than fundamental, says Joy, who is based in Boston. “The problem is we are just stuck,” Joy says. And he blames gridlock in Washington for much of America’s mental anguish. “The debt ceiling debate was a debilitating event for psyche of the U.S. investor, even more than the Lehman Brothers collapse,” Joy says.

Joy knows the pain American consumers are feeling firsthand: His Boston-area home has been on the market since January 2010, while he’s carrying another home in a community for empty nesters. “Thankfully,” he says. “My new home has actually gained a bit in value since we bought it.”

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It’s good that banks are better capitalized than they were in 2008, but the amount of capital held in reserve is not the primary threat to the banking system.

The primary threat to banks is a sudden loss of confidence in the system. There are some scenarios that could cause that and those scenarios are not as few or as unlikely as they should be.

Posted by breezinthru | Report as abusive

Seriously….yes…it’s no longer when is it going to get better it’s how bad is it going to get?? Tick Tock!!!

Posted by Crash866 | Report as abusive

A double dip recession requires a recovery of sorts. In Utah, jobs are supposed to be stronger than most states. It doesn’t feel like that on main street. Help wanted ads are almost non existent. Workers who enjoyed strong careers are settling for anything. Corporate profits – up. Executive salaries and bonuses – up. Mid level management jobs – gone! Workers are trading good paying jobs for low money service jobs. Still in 1st Dip!!!

Posted by RElliott | Report as abusive