Monday, July 05, 2010

Preparing For A Double-Dip

The fragile economic recovery is in trouble -- deep trouble. While some experts see the possibility of falling back into recession as unlikely, the market doesn't agree, now approaching bear territory and pricing a double-dip into the future, the near future.


Lots of reasons, a primary one being unemployment. The last recession wiped out 8 million jobs and there has not been much positive job growth since the recession technically ended.

Other factors include housing where there has been no demand absent the now-expired homeowners tax credit, the expiration of the economic stimulus program, with some asking what did we get for $787 billion?

Pending tax increases, which includes the expiration of the Bush tax cuts at the end of 2010 doesn't portend anything good for GDP, and consumer confidence continues to plummet - and since the domestic consumer is 66% of the American economy, how he/she feels is important, very important, and so it is not surprising that consumer spending has been anemic.

Add in the European debt crisis with Spain and Portugal perhaps joining Greece soon, and there is a question about the health of the European economy and banking system.

Finally, there is the current U.S. regulatory environment, which is miserable, some say unworkable. If asked, I would say that and, indeed, did in a talk last week to a business association in Lake Tahoe. (I will publish that talk here tomorrow in another blog.)

Since anyone who reads knows these things, including business leaders, it is not surprising that there has been no commitment to hiring or capital expenditure. Rather, if demand for products or services rises, hours of existing employees are ratcheted up and temporary employees are hired. Regular, full-time employees are an investment that most companies are not yet willing to make.

And that brings the problem full-circle - without hiring there will be no material increase in consumer confidence or consumer spending and without spending, well, the deal falls apart. In our minds, the question is not whether the economy will double-dip under current conditions, but when, and whether this dip will surpass the last one.


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