Much of the bearish attention these days is focused on discerning a so called “double dip” shaping up as the next major macroeconomic trend yet a look back at many decades of recessionary circumstances shows scant evidence that such phenomena occur organically.
On the other hand, what is the true definition of a double dip?
How long or short does an expansion have to run between dips and what are the primary measures that determine the thoroughness and validity of that expansion?
The following chart shows the consumer price index for food goods running back to 1913 along with band overlays indicating each recession and depression.
click to enlarge
Although there have been a good number of recessions since 1913 (nearly 20), since the Great Depression the only generally accepted occurrence of a “double dip” recession was the period between 1980-82 when former Federal Reserve chairman Volcker forced the condition as a means of stamping out a serious bout of inflation.
So, although the early 80s period is our prototypical example of “double dip” it came about as a direct result of monetary policy not as a result of naturally weak economic conditions yielding to another leg down as we speculate might occur today.
This would seem to indicate that recessionary periods generally tend to flush enough of the bad out of the system so as to provide for a subsequent period of growth not ongoing fragility.
Yet, considering the weak definition of economic double dips and their intervening expansion as well as some unprecedented recent trends may lead one to hold a more dire outlook.
First, consider the following chart showing the “Real” S&P 500 index (inflation adjusted using CPI) and non-farm population ratio since 1950.
As you can see from the chart above, between the early 1960s and 2000 economic expansions (except the 80s double dip) typically brought an increasingly larger percentage of the work age population into the workforce.
Since 2000 though, the job picture has been so weak that participation in the workforce has been effectively in decline for a decade… a lost decade for jobs where over 44% of the time workers were facing an economy that was shedding jobs.
The 2000s were so weak, in fact, that less than 500K net new non-farm jobs were created for the entirety of the decade while the work age population grew by more than 20 million.
Further, real stock values (given by the S&P 500 adjusted with CPI) peaked and trended down very similarly to the weak job participation.
This begs the questions “Was the 2000s really one large double-dip?” and “Are we actually headed for a triple-dip?”
The answer to those questions will likely be definitively determined decades from now when the economic dust of this whole ugly period settles but considering the severity of the jobs situation and the weakness of stocks it would appear easy to conclude that the post-dot-com recession and the great housing recession were effectively united by only the very weakest of technical expansions.
This would appear to argue for the 2000s being considered nothing short of a major “organic” double dip episode.
If you accept the notion that an organic double-dip actually occurred throughout the 2000s then the future may be somewhat of a foregone conclusion… more weak job conditions, more weak economy and likely another leg down.
Yet, as with the period between 2002-2006, any weak expansion may feel legitimate and may trend longer than our quick prototypical 80s double-dip so while the third dip may be approaching, it may not feel like it until it’s upon us.