Fears of ‘double-dip’ recession

Stock markets in the U.S. and abroad plunged violently over the past week before staging a partial comeback, as investors worried that Europe’s mounting debt woes could derail the still-fragile U.S. recovery. U.S. stocks lost 3 percent of their value—their worst one-day losses in more than a year—and several domestic and international stock indexes have now fallen more than 10 percent since April. A credit squeeze in Europe does not have a direct impact on most U.S. companies, but it has stirred fears that stress in the European banking system could spread across the Atlantic and make it difficult for U.S. companies to resume hiring, touching off a “double-dip” recession.

It’s always dangerous to assume that market woes reflect the real economy, said Megan McArdle in TheAtlantic.com. But in this case, investors’ pessimism seems well-founded. Jobless claims rose unexpectedly, mortgage applications are down, and it’s anybody’s guess if Europe can pull itself out of its morass. And if we are on the verge of a double-dip recession, this time the bottom could fall out. “The parallels to the Great Depression are not perfect, but they’re certainly uncomfortable.”

“Things are not as bad as they seem,” said John Dorfman in The Boston Globe. U.S. corporations have been reporting higher earnings, the gross domestic product has risen three quarters in a row, and most analysts believe the U.S. unemployment rate will soon start to decline, albeit slowly. And with its trillion-dollar rescue package to save Greece and the euro, Europe has risen to the occasion.

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“The most ominous news” doesn’t concern the euro, said Jon Talton in The Seattle Times, but rather our own consumer price index. Consumer prices in April rose at the smallest rate since 1966, a sign that we’re on the cusp of deflation—a dreadful cycle in which lower prices lead to lower production and fewer jobs. It’s not hopeless, but “we’re the closest to a double dip that we’ve been since this very weak recovery began.”