You’ve probably heard the phrase “double dip recession” in the news lately. A double dip recession is one in which the gross national product (GNP) growth dips back into the negative after a quarter or two of positive growth. In plain English, a double dip recession (or “W” shaped recession) happens when a country goes through a recession, experiences a short period of growth for several months due to an infuse of stimulus money or extended unemployment benefits, and then falls right back into a recession again once the money is gone.
The last time the US had a double dip recession was during the years of 1980 to 1982. I was in college back then and among the millions of people who had been laid off during the second period of that recession. My recollection was that the second “dip” of that recession was far worse than the original recession that started it all. Consumers stopped spending money which resulted in massive unemployment, lowered consumer confidence, and a considerable drop in property values. The second leg of that recession was so bad that it took our state about two years to fully recover from the after affects.
The same kind of financial trouble our country experienced back then seems to be looming on the horizon as unemployment benefits begin to run out. Some economists predict that a double dip recession is inevitable due to a weak housing market and high unemployment numbers. They set the odds of the US entering a double dip recession at 20%. The vast majority of economists are slightly more optimistic and see recovery more along the lines of a “U”. U-shaped growth is characterized by a sluggish, subpar recovery that limps along for two or more years before things return back to normal. Current projections for a U-shaped recovery are set at a 60% possibility.
When it comes to financial recovery, there’s no denying that we aren’t out of the woods yet, and won’t be for at least a couple of years. For those of us who fall in the middle-to-low income bracket, hang on to those wallets because we’re all in for a bumpy ride.