NEW YORK (CNN/Money) -
For months, most U.S. economists have been saying the economy is in little danger of "double dipping" back into another recession, and for months economic data have been supporting that view -- until recently.
The National Bureau of Economic Research, a private economists' group that is the most respected arbiter of the nation's economic cycles, examines a small set of data before calling the start of a recession: the number of employees on non-farm payrolls; industrial output; sales by manufacturers, wholesalers and retailers; and real personal income.
Of those four, the most critical is the employment figure, according to the NBER. During a recession that began in March 2001, payrolls fell for 13 straight months. This year, beginning in May, employment grew slightly for four straight months.
But payrolls fell by about 43,000 jobs in September. Meanwhile, another number followed by the NBER, industrial production as measured by the Federal Reserve, fell in August, the first decline since December 2001.
It's early yet, and these numbers could be revised, but if they are the start of a trend, then the economy might already fallen back into recession in September.
"If we hadn't had a recession a year ago, and we were watching the fall in employment, a stalling manufacturing sector, falling bond yields and falling stock prices, many people would think we were entering a recession," said Rory Robertson, interest-rate strategist at Macquarie Equities (USA). "There's an assumption that the recovery will continue and get stronger next year, when in fact it's possible the economy's tipping over again."
"It's too early to say with great confidence that things are definitely getting worse, but if we get another month or two of payrolls declines, there won't be any shortage of people saying a double dip has started," Robertson added.
Most economists aren't convinced of that yet.
They acknowledge the economy is facing risks, particularly the reluctance of businesses to hire new workers and increase production until uncertainties about the economy, a possible war in Iraq and falling stock prices clear up.
But they also point to continuing strength in consumer spending, which probably drove gross domestic product (GDP), the broadest measure of the economy, up at a 3 percent rate or better in the third quarter.
Though GDP growth is expected to slow in the fourth quarter -- especially since a lot of the third quarter's strength was driven by automobile sales, which won't contribute much in the fourth quarter -- it's still not expected to fall off the table.
"It's appropriate to characterize our situation as on the bumpy road to recovery," Treasury Secretary Paul O'Neill said at a Washington news conference Thursday. "It's not a rocket shot, but it's not terrible, either."
O'Neill and Commerce Secretary Don Evans joined a chorus of voices in the Bush administration, including White House economic advisor Glenn Hubbard, who have tried to reassure nervous Americans that the recovery is still breathing, however blue its face might look. Fed Chairman Alan Greenspan and other central bank officials have made similar comments.
But are they all just whistling past the double dip?
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"For the [Bush] administration, Hubbard is a good soldier, he's out there being a cheerleader; and the Fed says everything's OK," said Northern Trust economist Paul Kasriel. "But you can't see their hands behind their backs, with their fingers crossed."
This is an especially sensitive issue for Bush, considering his father lost a bid for re-election in 1992 mostly due to charges that he gave the economy short shrift.
Kasriel and other economists point to high levels of consumer debt as a major threat to the current economy, with household debt loads at record highs relative to disposable income and Americans spending $1.22 for every dollar they earn.
With personal bankruptcies and mortgage foreclosures at record levels and delinquency rates rising on credit cards, auto loans and other debts, consumer spending, which fuels two-thirds of the total economy, is endangered.
"Maybe the economy's just going to bump along the bottom for a while or have sluggish growth. But given the state of consumer finance, I don't see how there can't be major problems if unemployment goes up," Kasriel said.
And there are even deeper problems in the corporate sector, which has a glut of excess production capacity following the boom in technology spending at the end of the 1990s.
That spending fell off a cliff in the second half of 2000, after the stock market bubble burst and businesses woke up from the late 1990s party. Most were left with a splitting hangover, reflected by the bunch of shiny computers and gizmos for which they had little use.
What followed was a prolonged slump in the manufacturing sector, setting the stage for a grim labor market. During the height of the 1990s boom, between 1993 and May 2000, payrolls expanded by about 250,000 jobs a month.
But payroll growth hit a brick wall in June 2000, growing by just 38,000 jobs, and it's been pretty much downhill ever since.
"We've basically been in one long recession that started in the fall of 2000," said Lacy Hunt, chief economist at Hoisington Investment Management in Austin, Tex.
If that's the case, then any head-scratching about "double-dipping" is moot.
Continuing stock-market weakness could be one sign that the economy's downturn still hasn't ended, according to Hunt, who said that, in every one of the last 19 recessions, there was a meaningful upturn in the Standard & Poor's 500 stock index that took place about six months before the recession ended. That obviously hasn't happened yet.
"The stock market has given off false signals in terms of anticipating recessions, but it has never given off a false signal about recovery before the recession ended," Hunt said.
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