What Does It Mean to Dip Twice?

One theme coming out of the latest jobs report was the idea that “at least we’re not heading for a double-dip recession.” But I think this simply raises the question of what a double-dip really means.

Think about this. If the economy grows consistently the unemployment rate will eventually fall back to a low level. But the economy never just “grows consistently.” Recessions happen. And one question is whether we’ll grow rapidly enough during the current expansion to re-obtain decent labor market conditions before a new recession starts. There are lots of ways you can look at this. But consider that following the NASDAQ crash in 2000 we never managed to re-obtain the pre-crash peak of the employment-population ratio or the pre-crash peak in household income. And that was a relatively modest recession. Given the way things are going, I think you’d have to judge that the odds of not re-obtaining 2007 levels of employment and income—to say nothing of 2000 levels—are extremely good. Whether that looks like a “double dip” or not will depend on how long it takes to start heading down again, but the ultimate impact will be about the same either way.