Why We’re Not in a Double-Dip Recession (Yet)

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NEW YORK (MainStreet) — Ever since the Great Recession ended in mid-2009, most Americans seemed to divide into two camps: those who felt another recession was around the corner and those who refused to believe the first recession had actually ended. Fiscal optimists, in this country, are hard to come by and will likely be even harder to find after this week.

After weeks of choppy trading, the Dow Jones Industrial Average dropped more than 500 points on Thursday, driven largely by concerns about a growing debt crisis in Europe and concerns about fiscal health at home, in what proved to be the Dow’s worst single-day loss since late 2008 during the worst of the recession. By the end of the day, seemingly every publication published articles questioning whether the dreaded double dip was finally taking place, but this may be a bit premature.

A double-dip recession, by definition, only occurs when the country’s gross domestic product contracts and hits negative numbers in one financial quarter after having been positive for one or more quarters prior. While the country’s GDP has been somewhat anemic, it does not yet fit this definition.

According to the most recent numbers from the Commerce Department, the U.S. economy grew by 0.4% in the first quarter of 2011 and by 1.3% in the second quarter. Again, these are not big numbers, but just by virtue of being positive rather than negative they disprove those who think the country is back in a recession. That said, if the Commerce Department revises these numbers downwards as it often does after further analysis of updated data, or if the current fiscal quarter (which ends in September) shows negative growth, then the country could be said to be officially in a double-dip recession.

Putting aside GDP growth, there are several other indicators that hint at the direction the economy is heading, like retail sales, job numbers and the strength of the housing market. While housing has remained in a precarious position, the other two metrics have shown signs of modest improvement.

One report out this week tracking the performance of 25 major retailers showed that sales were up at the majority of these stores and increased on the whole by 4.4% in July. Likewise, the newest job numbers show that the unemployment rate dropped slightly to 9.1% in July as the economy added 117,000 new jobs. These data points do not provide much hope of a full-fledged recovery, but neither do they seem to indicate an economy on the brink of collapse.

Wondering what could cause the country to enter another recession? MainStreet put this question to several leading economists earlier this year. Find out their responses in this article.

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

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