6 Reasons Why We are Currently in a Double Dip (or Never Left the First Dip)

With everyone running around quoting the probabilities that we will enter a double dip, it might be worth taking 5 minutes to step back and ask if we’re already in a dreaded double-dip (or if we ever left the first dip, for that matter).

Here are 6 reasons why we’re probably already in a double dip or probably never left the first dip:

1. According to the Congressional Budget Office, 4.5% of Q2’s 1.6% GDP figure was due to government spending. So excluding government payments, the economy shrank in Q2. Isn’t shrinking GDP evidence enough? In case it’s not, here’s more…

2. U-6 unemployment rate is just under 17% and has hovered around at that level for the past year. The unemployed don’t spend money. And the employed are scared to spend money because they live in fear for their jobs.

3. The US consumer is still drowning in debt. Today’s average household debt-to-income ratio at 130% is still 65 percentage points above its long-run average. Consumer deleveraging remains a daunting force in today’s economy. Consumers are squeezing every penny out of discretionary spending to pay down debt.

4. Nearly 25% of the US population with a mortgage is underwater. Approximately 5 million homeowners are now either in the foreclosure process or are delinquent. While home purchases have a positive knock-on effect on the economy, home liquidations have a negative effect. This trend will continue until home prices and personal debt-to-income ratios align with historical averages. This could take years, depending on the level of government tinkering with the natural market process.

5. 86% of small business owners fear a double-dip recession. A potential self-fulfilling prophecy. Anxious small business proprietors won’t hire, and since small businesses are the engine of American economic growth aggregate employment won’t rise and GDP growth rise until small business owners feel comfortable.

6. The little improvement that is seen actually reinforces the deflationary pressures. The unemployed that are able to find jobs are doing so at lower than previous wages. Aggregate income is an important driver behind consumption, and as incomes fall so too does consumer spending.