Double dip recession: What are the odds?

By Annalyn Censky, staff reporter


NEW YORK (CNNMoney.com) -- Europe's debt crisis. Companies still not hiring. The Gulf oil spill. These are uncertain times to say the least. But while you might think economists would be running for the hills and looking ahead to a so-called "double dip recession," that's not necessarily the case.

In fact, some economists think a double dip is even less likely than it was earlier this year.

David Wyss, chief economist with Standard & Poor's, said that even though he thinks slower U.S. growth is practically a sure thing, the odds of a double-dip actually have shrunk to 20%, from 25% earlier this year.

Same goes for Derek Hoffman, founder and editor of The Wall Street Cheat Sheet, who also puts the odds of a double dip at 20%, when just a few months earlier he saw them at 50-50.

The term "double dip" refers to a recession followed by a short-lived recovery that then slides back into a second recession. It can be measured by fluctuations in gross domestic product, or GDP -- one of the broadest measures of economic activity.

Hoffman said he changed his mind about a potential double dip after major U.S. companies reported solid profit growth in the first quarter of 2010 and European leaders approved a $1 trillion bailout package to deal with the region's debt crisis.

Granted, the picture isn't all rosy. Unemployment is still high at 9.7%. But Wyss points out that consumers are spending again. Plus, the average person on main street doesn't seem as worried about getting laid off as they were a year ago, he said.

Wyss's comments echo those of Federal Reserve chairman Ben Bernanke, who on Monday told reporters that he expects a continued economic recovery, in part because of revived consumer spending. Bernanke also said the recovery would be slow -- it "won't feel terrific," he said.

Bernanke dodged a question about whether he fears a double-dip recession, saying "nobody knows with any certainty."

To be sure, any chance of a double dip is nothing to shrug off.

Mark Vitner, a senior economist at Wells Fargo Securities, likes to call himself an optimist, but said he can't deny that when he talks to clients, he's blunt about the risk of a double dip. He calculates the chances of one happening at about 30%, whereas a few months ago, he would have said it was as low as 15%.

"We experienced the worst crisis in a generation and now there are major problems in Europe and with the oil spill. How optimistic can you expect an optimist to be?" he said.

The winding down of government stimulus programs and inventory rebuilding, which together accounted for much of the recovery, are the major factors behind a slowdown, Vitner said.

Add in geopolitical unrest and volatile global markets, and businesses, consumers and lawmakers alike will be more hesitant to make investments that could support economic growth.

"One of the things to remember is conditions do not have to be perfect for the economy to grow," Vitner said. "But there's a limit to how much bad news this economy can take."

In the case of the Great Recession, the U.S. economy shrunk by 6.3%, the sharpest decline in 26 years. A year later, that negative number turned positive: GDP in the fourth quarter of 2009 showed 5.6% growth -- the best in 6 years.

For a double dip to technically occur, GDP would have to once again turn negative.

Overall, economists are predicting that the U.S. recovery will slow to around 3% growth this year. Nevertheless, growth is growth.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,573.41 216.54 1.25%
Nasdaq 4,710.89 66.58 1.43%
S&P 500 2,038.93 26.04 1.29%
Treasuries 2.21 0.06 2.79%
Data as of 11:29am ET
Company Price Change % Change
Bank of America Corp... 17.36 0.10 0.58%
Apple Inc 110.90 1.50 1.37%
Oracle Corp 44.31 3.15 7.65%
General Electric Co 24.85 0.42 1.72%
Halliburton Co 39.02 -0.42 -1.06%
Data as of 11:14am ET

Sections

GM says it has temporarily halted deliveries to Russia due to the plunge in the value of the ruble. More

O'Donnell sued Countrywide, and how he's getting chunk of $16.6 billion settlement. More

Hacking of Sony's movie studio is getting most of attention but problems and losses in consumer electronics a much bigger problem for the company. More

Reddit's Alexis Ohanian has been vocal about the need for high-skilled visa reform. At stake? The country's position as a tech leader. More

Congress waited until the last minute to decide what to do with a slew of expired tax breaks. They extended most of them, and a handful will affect individuals directly. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.