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Back about six weeks ago, I predicted that the economy was headed for an official "double-dip" recession. Today's Commerce Department report on the economy showed the second quarter of 2011 GDP growth at 1.3% but also reported a downward revision to the 1st quarter GDP from 1.9% to .4%. This is after the original 1st quarter numbers had been revised upwards slightly from 1.8% back in June.
The economy grew at a 1.3 percent annual pace in the second quarter after expanding just 0.4 percent in the first three months of the year. First-quarter growth was revised from the previously reported 1.9 percent increase.Now, I have been using the phrase "officially a double-dip" because for the millions of people among the long term un and underemployed, we've never left the Great Recession/Lesser Depression. It has been all one long scene of watching our unemployment run out, our savings and retirement plans get cashed in and spent while trying to survive and keep a roof over our heads. And this is not just limited to those folks covered by the official un and underemployment lists but includes the new college graduates from the last few years trying to find employment in their fields. It also includes the folks who gave up and filed for Social Security if they were eligible, just to have some money coming in. It includes all the folks who are now considered "independent contractors" or "self-employed."
While the recovery stepped-up in the second quarter, economists had expected a stronger 1.9 percent reading.
Fourth-quarter  growth was revised to a 2.3 percent rate from 3.1 percent.
Today's (Friday, July 29) USA Today had this article pointing out the glaringly obvious point that both of the spending cut plans offered by Speaker of the House John Boehner and Senate Majority Leader Harry Reid respectively would further slow the US economy, driving us closer to the double-dip:
All things being equal, lower spending translates into slower economic growth, since it means cuts in payments to contractors, layoffs of government employees, and smaller entitlement checks. Already in 2011, softer government spending has sapped growth.Economist Laura D'Andrea Tyson in a post at the NY Times Economix blog had this to say:
Cuts by federal, state, and local governments lowered gross domestic product — a broad measure of the total output of the economy — by 1.2 percentage points in the first quarter of 2011, according to the Commerce Department. Goldman Sachs economists estimate that the first quarter showed the biggest negative effect of government spending on GDP growth since the mid-1980s. The Commerce Department will release its estimate of second-quarter GDP today.
Like many economists, I believe that the immediate crisis facing the United States economy is the jobs deficit, not the budget deficit. The magnitude of the jobs crisis is clearly illustrated by the jobs gap – currently around 12.3 million jobs.Point of fact, I think Tyson is underestimating the current "jobs gap" when she places it at 12.3M, since the unemployment number is roughly 14M and the un and underemployed number is 25M to 30M. And that is not counting the new grads and the "independent contractors" universe, which add some more millions to those in need of decent, long term employment.
That is how many jobs the economy must add to return to its peak employment level before the 2008-9 recession and to absorb the 125,000 people who enter the labor force each month. At the current pace of recovery, the gap will be not closed until 2020 or later.
The jobs gap is primarily the result of the dramatic collapse in aggregate demand that began with the financial crisis of 2008. Even with unprecedented amounts of monetary and fiscal stimulus, the recovery that began in June 2009 has remained anemic, because consumers, the major driver of private demand, have curbed their spending, increased their saving and started to deleverage and reduce their debt — and they still have a long way to go.
One of the little hooks I use to look at the economy is checking who is posting job ads in my field. While admittedly anecdotal and limited in nature, it does offer an indicator of the strength of the economy and right now, it is back to as it was in 2008 and 2009 with most of the job postings in my field of Software Quality Assurance and Testing coming from three or four different headhunter/body shop agencies. As a contrast, there was a short period last summer when the job openings were coming from individual employers. It didn't last.
It's not getting better. Just yesterday and today we have Merck announcing plans to cut 12K to 13K jobs, Boston Scientific cutting 1,200, and 575 folks at four nursing homes in Connecticut losing jobs (with more to come). FAA layoffs are just a start of what we will see coming from Washington and the states as the Debt Ceiling Danse Macabre continues.
The double-dip will be in place by the end of this calendar year.
And because I can: