Bracing for a Double-Dip Recession: Going Global

shoujie

by Jason Simpkins

The last time the U.S. economy suffered through a double-dip recession, this country was struggling to overcome the fallout from an Arab oil embargo, Vietnam War-era deficits, and an inflationary spiral that just wouldn't let go.

That 1981-82 double-dip downturn - the result of an economic "shock treatment" aimed at curing those ills - consisted of two recessions that were separated by a single quarter of growth.

The current backdrop is very different from the one that was in place back then, but the threat of a double-dip recession is no less real.

The world's No. 1 economy lost 8.4 million jobs during the recession that got its start in December 2007, making it the worst national downturn since the Great Depression and the biggest loss of employment since the end of World War II.

The U.S economy shrank a larger-than-expected 4.1% from the fourth quarter of 2007 to the second quarter of 2009, the Commerce Department recently reported. Household spending fell 1.2% last year - the biggest decline in 67 years and double what was previously believed, the government said.

The unemployment rate remained unchanged at 9.5% in July, as the economy shed 131,000 jobs. What's more, the number of U.S. workers filing new claims for jobless benefits unexpectedly rose last week to 484,000 - the highest level in nearly six months.

"Unemployment is the most important problem we have right now," Bernanke told the House Financial Services Committee. He expects the unemployment to remain above 7% throughout 2012.

After expanding by 5% in the 2009 final quarter, U.S. gross domestic product (GDP) advanced at a slower 3.7% pace in the first three months of the New Year - before skidding to a much-slower-than-expected 2.4% pace for the second quarter.

That stumble prompted economists to slash their U.S. growth forecasts to 2.3% (from 3.3%) for the current quarter, and to cut their full-year targets to 2.9% for 2010 and 2.6% for 2011. As we've already seen, however, those projections are overly optimistic, ignoring the very real possibility of another full-blown downturn - the textbook definition of a double-dip recession.

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