Recession Ends, But Is the Pain Over?

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Last week, an influential panel of economists declared the recession officially over. In fact, according to the economists, the recession ended back in June of last year as our country’s gross domestic product increased for the following two consecutive quarters.

Yet, other recent reports paint a gloomier picture and indicate the economy may only get worse in the months and years to come.

The Federal Reserve Bank of San Francisco released a report this week predicting that the unemployment rate, which currently sits at 9.6%, may hit double digits again by early next year. The economists behind this report note that the Congressional Budget Office expects the economy will increase by 2.1% annually for the next five years, but that there are signs GDP growth may fall below this level. If it does, the unemployment rate will likely go up to as high as 10.1%, matching the worst level it hit during the recession.

Another study out this month from the Organisation for Economic Co-operation and Development claims that it will take two more years for the unemployment rate to drop back to the pre-recession levels of 5% or 6%. This study cited several factors, including limited credit flow and a decrease in average household net worth, which need to improve before the job market will be able to return to some degree of normalcy. (Sadly, the rest of the world may not be much better off, as the United Nations recently announced it may take five years for jobs to return to many countries.)

Meanwhile, the growth of our country’s GDP, which is the make-or-break factor in a recession, is beginning to slow down as well. In the fourth quarter of 2009, the GDP rose by a healthy 5%, but in the first two quarters of this year, that number began to drop.

The GDP increased by 3.7% in the first quarter of 2010, and by just 1.7% in the second quarter. Now, in order for us to slide back into another recession, the GDP growth rate would have to be negative. Still, the decline to 1.7% is reason enough for concern.

Beyond these findings, there are fears that the housing market may get worse before it gets better (if it ever gets better).

As we reported recently, some now speculate that the housing market will not bottom out until 2014, and then remain largely stagnant for years to come. Other analysts point to the vast number of homes still in danger of foreclosure (as many as 10 million), which need to be processed and sold off before the market can effectively begin to recover.

All of this taken together points to the fact that the economy will likely continue to head south. So will we end up experiencing another recession soon? According to Nouriel Roubini, the economist who predicted the initial financial collapse before it happened in 2007, there is a growing likelihood that we may in fact see a double-dip recession. He currently puts the odds at 40%. I’m not sure I would take that bet.

For a list of other signs that another recession may be coming, check out this article on MainStreet.

—For a comprehensive credit report, visit the BankingMyWay.com Credit Center.

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