Unemployment data released Friday led to renewed headlines warning of a double-dip recession.
But a quick fact check shows this talk is even more misplaced now than last year.
What data (even the data some recently bemoan) actually show is economic expansion.
Does the media merely recycle old financial news headlines? If you followed financial news last week, you could be forgiven for thinking the answer is yes. (How green of them!) Nearly a year ago to the day, headlines frequently opined a double dip was approaching and inevitable. One news story bemoaned the US May 2010 unemployment report showed private employers added “a measly 41,000 net new jobs.”
Fast forward: This week, headlines frequently mistook slowing growth for contraction (like here or here) and bemoaned nonfarm payrolls expanded just 54,000 in May (after adding 232,000 in April, but never mind) or warned of an impending double-dip recession.
What happened between last year and this? Some economic metrics slowed a bit mid-year, but reaccelerated, pushing both real and nominal GDP to all-time highs. Hiring accelerated. Trade set record highs. Corporate profits and revenues grew. Said differently, a double dip didn’t happen, and the US economy is bigger today than it’s ever been before.
Last year, we said the definition of a double-dip recession was sketchy at best and a recession (double-dip or otherwise) was improbable at that time. But talk of a double-dip recession today is even more misplaced. In the event a recession occurs soon (unlikely, in our view), it would be an entirely separate and distinct event from the recession of late-2007 through early 2009. About two years have passed since then, and again, the US economy is bigger than it was before the recession. Perhaps it’s somewhat semantic, but two years is a decently long growth period. Further, can you double dip from a higher point?
The more important question, rather than semantic quibbles, is: Could the US experience a new recession? Possible—always is—but not likely right now in our view. In fact, even the economic data most point to recently as signs of economic malaise show growth—not contraction. It just hasn’t been as strong as analysts’ expectations. And consider: While many chose to focus on a slight uptick in the unemployment rate (wrongly, in our view), Friday’s US unemployment report (while weaker than reports from earlier this year) showed 83,000 private hires—more than double May 2010’s figure. And last week, while most chose to dwell on manufacturing statistics showing slower growth rates, the Institute for Supply Management’s services sector survey showed the largest sector in the US economy accelerated.
We’ve frequently written 2011 is a year where investors seem to fall predominantly in two camps—the persistently pessimistic and the overly optimistic. Both were hard at work last week: The overly optimistic drove expectations for economic data higher. Meanwhile, when some data didn’t reach those expectations, the pessimists latched on. But importantly, that’s far more descriptive of the two camps’ psyches than it is economic fundamentals.
Interpreting economic data from either a greed- or fear-based perspective is a common problem among many investors—and it isn’t limited to just last week. It leads to a myopic view of the world in which a dramatic event is expected, at any time, in either direction—obscuring the fact such events are actually quite rare. What recent US economic data show is not nearly a depression. It’s not an impending double-dip recession. And it’s not a recession. Folks, it’s not even a recovery—it’s an economic expansion. That current growth isn’t as fast as some might like doesn’t change that fact—and it doesn’t necessarily indicate some kind of systemic, long-term change precluding faster growth ahead. And economic expansion in an economy as large as the US, not to mention the whole world, typically isn’t characterized by shocks, positive or negative. It’s far more likely a gradual uphill climb, the steepness of which frequently varies along its course.