Evaluating the Odds of a Double-Dip Recession

If you have a job and it’s not in jeopardy, pull out the party hat and toot your horn. The OECD calls an end to the global recession.
 

“The global downturn was effectively declared over yesterday, with the Organisation for Economic Co-operation and Development (OECD) revealing that "clear signs of recovery are now visible" in all seven of the leading Western economies, as well as in each of the key "Bric" nations.

“The OECD's composite leading indicators suggest that activity is now improving in all of the world's most significant 11 economies -- the leading seven, consisting of the US, UK, Germany, Italy, France, Canada, and Japan and the Bric nations of Brazil, Russia, India and China. And in almost every case, at a faster pace than previously.

“Each of the 11 economies saw an improvement in July, the OECD said, with only France improving at a slower rate than in June. The July figures are the most encouraging since the indices began ticking downwards during the first quarter of last year.

“The OECD's leading indicators are considered a key economic yardstick because they measure the sectors of countries' economies that tend to react first to upswings and downturns. As such, they provide early evidence of the way in which the overall economy is progressing.”

Unemployment Likely to Rise for a Year

If you don't have a job or your job is in jeopardy, you may not feel like partying much: Unemployment is likely to rise for another year.

Moreover, there are strong reasons to expect Structurally High Unemployment for a Decade.

In the Incredible Shrinking Boomer Economy I noted a harsh reality quote of Bernanke: "It takes GDP growth of about 2.5% to keep the jobless rate constant. But the Fed expects growth of only about 1% in the last six months of the year. So that's not enough to bring down the unemployment rate."

What happens if GDP can't exceed 2.5% for a couple of years? What about a decade (or on and off for a decade)?

If you have come to the conclusion that we’re going to have structurally high unemployment for a decade, you’re right. Ask yourself: Is that what the stock market is priced for?

False Threat of a Double Dip

Inquiring minds are reading Econbrowser's Guest contribution from Michael Dueker on the economic recovery.
 

“Michael Dueker is Head Economist for North America at Russell Investments and a member of the Blue Chip forecasting panel. In February of 2008 he warned Econbrowser readers that it appeared unlikely that the economy was going to escape the slowdown without a recession. In December of 2008, he predicted in this forum that the recession would last until July or August of 2009, but that employment growth wouldn’t resume until March of 2010.

“With that track record, we were very interested to learn the latest macroeconomic predictions stemming from Russell's Business Cycle Index, subject to the disclaimer that the content doesn’t constitute investment advice or projections of the stock market or any specific investment.”