Fears of Double-Dip Recession Receding

We, at Hennion & Walsh, believe the U.S. economy will continue to struggle to build any type of sustainable recovery in the face of historically high levels of unemployment, continued fears over potential sovereign defaults and political uncertainties leading into this fall’s mid-term elections.  Our primary concern centers on job growth.  According to the Bureau of Labor Statistics, the current U-3 unemployment rate stands at 9.6%.  However, when one considers the wider encompassing U-6 unemployment rate, which counts not only people without work seeking full-time employment (the more familiar U-3 rate), but also counts marginally attached workers and those working part-time for economic reasons, of 16.5%, it begins to become very difficult to imagine a scenario where consumers will start to spend at the levels needed to build a sustainable economic recovery.  Despite this, we view a double-dip recession scenario as extreme and unlikely based upon several different economic data points.

Our belief was further validated with several economic data reports that were released in recent weeks.  Interestingly, it was a jobs report that provided the major catalyst for a positive sentiment change and last week’s market turnaround, albeit temporarily.  Last Friday’s private-sector payroll report from the Labor Department showed job growth, yes growth, of 67,000 new jobs in August.  Overall, however, the economy lost another 54,000 jobs mostly due to temporary Government jobs expiring and the U-3 unemployment rate rose from 9.5% to 9.6%.   Yet another piece of conflicting economic data that is leaving the markets, and investors, with a lack of conviction.

Without consistent job growth in the U.S., U.S. consumers will not spend.  Without U.S. consumer spending, not only can the U.S. economy (which despite its inefficiencies, is still the largest economy in the world) not fully recover but the global economy recovery may be hampered as well especially in light of government spending cuts and other austerity measures in key international markets.

While the likelihood of a double-dip recession in our opinion remains low, the likelihood of a sluggish and drawn-out economic recovery continues to increase.