The news about the economy is not good.
But you probably already know that.
It seems that all you hear about lately are downgrades, precarious stock market dives, persistently high unemployment, and debt crises in Europe. In fact, a lot of people are starting to say that the news about the economy sounds an awful lot like it did in 2008, when the United States and the rest of the world fell into a debilitating recession that it still has not recovered from.
So, are we heading for a double-dip recession that could be deeper, longer and more painful than the last?
Potentially, some economists say, but we’re not there yet.
Steven Lanza, executive editor of the Connecticut Economy, a quarterly publication that looks at economic issues and their effect on the state, and a professor of economics at the University of Connecticut, said that the U.S. economy is “basically treading water,” and has been for the last few years.
Lanza noted that although the U.S. economy is growing, it is doing so at a much slower rate than normal, while dangerous economic factors like Standard and Poor’s downgrade of the U.S.’s credit rating or fear of mounting debt crises in Europe could be enough to push the fragile economic recovery over a precipice.
“It’s far too slow to make up for the lost ground that’s happened since the recession set in,” Lanza said of the U.S. economy’s meager economic growth. “It’s not anywhere near enough to keep up with the natural growth rate of the labor force, let alone to reduce the unemployment for those who have lost their job, and that’s why things just feel so awful out there.”
Economists define a recession as a drop or contraction in a nation’s gross domestic product – the sum total of all goods and services, including property, produced by a nation – for six or more months, or two economic quarters. By that standard, the U.S. emerged from the last recession in June of 2009, when the economy finally started to grow again after an 18 month period of decline, but the rate of growth it has posted since has been significantly slower than the typical “healthy” U.S. economy can produce.
According to the U.S. Department of Commerce’s Bureau of Economic Analysis, the U.S. economy posted a 0.4 percent GDP increase in the first quarter of 2011, and 1.3 percent growth in the second quarter. The Bureau of Economic Analysis attributed the GDP growth in the second quarter of 2011 to “contributions from exports, nonresidential fixed investment, private inventory investment, and federal government spending,” but noted that those gains were “partly offset” by negative spending at the state and local level.
If the U.S. were to slide back into a recession, according to Lanza, one possible cause could be a lack of federal spending to prop up the economy.
In 2009, when the U.S. was mired in its last recession, newly inaugurated President Barack Obama made the passage of the $787-billion American Recovery and Reinvestment Act one of the first pieces of legislation he signed into law, on Feb. 17, 2009. Although politicians and the general public might be split on the act’s merits and successes, most economists credit the billions of dollars the bill pumped into the economy as helping to end the recession and put the economy on a path toward recovery.
But as lawmakers in Washington spent the better part of the past few months haggling over the merits of raising the federal debt ceiling, and Republicans now in control of the U.S. House of Representatives, a further dose of federal economic stimulus does not appear likely anytime soon.
“That’s a big risk to the economy, especially when things are as tenuous as they are now,” said Lanza, who said the American Recovery and Reinvestment Act helped many state and local governments offset and forestall painful cuts. “We are not in self-sustaining recovery mode by any stretch of the imagination, and for the federal government to basically call it quits is not a good sign for the economy.”
Christopher Ball, an associate professor of economics at Quinnipiac University, said that although the economic news lately has been dire, it is not time to panic – yet.
“Our job numbers look a little better,” said Ball. “I see us sort of standing on the edge (of another recession), whereas we were standing many feet away several weeks ago.”
Ball said that concerns over the federal government’s debt level, similar concerns with the debt level of many European countries, and the partisan gridlock and squabbling by Congress over raising the debt ceiling only exacerbated weakness that were already present in the economy.
“I think we’ve got real problems. I don’t think it is just perception, I think we’ve legitimately slide up to the edge of another recession,” Ball said. “I think the problems are more substantial. If Europe continues to have banking problems, which it looks like it will, and continues to have major growth problems…than those are real dampers on our ability to export over there.”
When asked how a slide back into recession might be avoided, Ball said the federal government and the Federal Reserve had used up all its “normal tools” to correct the economy – stimulus spending, holding interest rates down, and purchasing government bonds – and that the only tool the government had left at its disposal was to “fix the budget problem.”
“We need a substantial and credible budget agreement in terms of solving some of our longer term fiscal problems,” Ball said. “If they fail to do that and just make it a political game on either side of the aisle, I think that uncertainty will just leave us kind of flat.”
But the economy is not in the tank yet, at least at the local level, according to John T. Lund, chief financial officer of Rockville Bank. Lund said that a lot of the “blame” for the last recession and the economic downturn has fallen on the banks and a tightening of the credit market, and well that may be true for larger international banks, he said that local community banks have been able to avoid the same pitfalls.
“We at the community banking level, if you need to borrow, we're still willing to lend,” Lund said. “…It's a sign that the community banks have made smart business decisions. The large commercial banks have made some bad decisions, but the community banks have avoided it."
Lund also offered another piece of advice – turn off the news.
"At times we want to tell people to turn off the news shows because they create more angst than is really necessary,” he said. “The federal statistics do not always apply to us at the community banking level because we have made good decisions.''
Although there is still plenty of reason to be concerned about the impact of another recession at the community level, according to local officials.
Manchester General Manager Scott Shanley said that Manchester, like a lot of local governments, still has not completely emerged from the recession of 2002, let alone regained any of the ground it lost in the last recession, and is bracing for the affects of the loss of federal stimulus aid at the end of the current year. Another recession on top of it that, he said, could result in additional cuts in state and federal funding, which would be disastrous.
"We never even regained where we were then," Shanley said. "And we’re still continuing to cut back in reaction to the current recession.”
It might not be a silver lining, but Shanley said the economy has been stagnant for so long now that people don’t expect it to get better overnight, and are prepared for the worst.
“I had hoped that by 2012 our economy would be seeing some brighter light, but it’s looking now like it will be 2013 or 2014 before things start to look up,” he said. “I think we’ve been in this recession so long now that I’m beyond the worried stage and beyond the anxiety stage. This is just the way it is.”