Is a double dip coming?

There has been several analysts predicting that the U.S. economy is headed for a double dip recession, which is looking more likely with each economic report we see. Whether we officially fall into a double dip recession or not, the economy clearly is still struggling. The current economic crisis began with housing and if it is likely to also end with housing, that end does not appear anywhere in site.


The U.S. Department of Housing and Urban Development on Wednesday released its new homes sales report for May showing a drop of 33%. Analysts have attributed the major drop in new home sales in May to the expiration at the end of April of government tax credits for new home buyers. While the end of the credits where expected to negatively affect sales figures, the May drop in sales goes way beyond those estimates.

The report comes on the heels of other bad news starting with the surprisingly poor May unemployment figures. The report showed virtually no job creation once temporary census hiring was taken out of the equation following promising growth in April. And today’s Fed announcement added more cold water to the flickering spark of recovery. While the Fed continued to state conditions “warrant exceptionally low levels of the federal funds rate for an extended period;” it added the following: “Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months.”

This is a departure from past rhetoric suggesting economic conditions slowly improving. While it did note that “the economic recovery is proceeding,” this is clearly a less optimistic view than past statements.

John Williams of reports that even government jobs are declining as the census reduced its payrolls by 240,000 in June. “I would look for an outright contraction of June payrolls, net of temporary census impact. Such would mean an aggregate monthly loss in excess of 250,000 jobs. The early consensus from is an aggregate loss of 70,000 jobs in June, versus May’s census-spiked gain of 431,000, with the June U.3 unemployment rate unchanged at 9.7%. I would be surprised if the consensus estimates do not turn more negative,” Williams noted.

It is hard to call this a recovery with near 10% unemployment but at least we were beginning to see job growth, even if it was only modest. If those numbers again turn negative a double dip seems likely.

About the Author
Daniel P. Collins

Editor-in-Chief of Futures Magazine, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange. Dan joined Futures in 2001 and in 2005 he was promoted to Managing Editor, responsible for overseeing all the content that went into Futures and Dan’s incisive reporting and no-holds barred commentary places him among the most recognized national media figures covering futures, derivative trading and alternative investments.

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