Has the Double-Dip Recession Arrived?
On Thursday and Friday August 18-19 of last week, the world's markets lurched downward. The Dow Jones Industrial Average shed nearly 600 points (-5.2%) as the week ended. The catalyst for the renewed fear came early on Thursday, when data released by the Philadelphia Federal Reserve Bank showed a potentially contracting economy in that region. The expected value for the outlook survey was slightly positive, but was in fact an incredibly disappointing -30.7. Investopedia offers a further explanation of the Philadelphia Fed Report
An increase in jobless claims to 408,000 and continued weakness in the housing sector have stoked speculation that the American economy is suffering negative growth. Bill Gross, manager of the PIMCO bond fund, believes that current low treasury yields indicate recession. In Gross's scenario, investors are bearish on growth and are parking their money in US treasuries as a safe holding area.
We must give added weight to disappointing jobs, housing, and Philly Fed numbers when we consider that economic growth for the first half of 2011 was truly anemic and not at all consistent with the expected growth of a post-recessionary period. Ultimately, we will not know for sure if a recession is beginning this August until months in the future -- such is the nature of macroeconomics. Present speculation occurs because every investor wants to be ahead of the wave, not chasing it. Whether we are in recession or not, economic performance this year has been poor.