An uncertain recovery

Despite some positive signs, economists wonder if the dreaded double-dip recession is looming

Paul Sakuma/AP

Judging by the brisk sales of Coach handbags, BMWs and other luxury items, a big swath of consumers has already forgotten about last year’s recession and its lessons about frugality. So why are economists suddenly debating whether we are once again on the precipice of another—perhaps more painful—downturn, creating a rare “double-dip” recession?

The answer, simply, is that the recovery has been as uneven as it was quick off the starting line. For those who didn’t lose their jobs, record-low interest rates provided the necessary ammunition to continue their pre-recession lifestyles. And the stock market followed with some impressive gains—for awhile. But now some economists are concerned about a lack of steady improvement in key U.S. economic data: the housing market remains weak, unemployment is stubbornly high, and recent numbers suggest broader consumer confidence is actually falling.

“It all boils down to the consumer, who is showing signs of fatigue,” David Rosenberg, the chief economist and strategist at Gluskin Sheff, wrote in a recent note to clients. Rosenberg, one of Bay Street’s bears, pegged the possibility of another U.S. recession, which would inevitably drag Canada down along with it, at 67 per cent. Robert Shiller, a professor of economics at Yale University, told Reuters that the probability of another recession is more than 50 per cent. Even Ben Bernanke, the chairman of the U.S. Federal Reserve, recently spoke of “unusual uncertainty” in the financial market.

Others, however, argue the double-dip concerns are overblown. “There is still a base of ongoing support coming from healthy corporate profits, which typically presage both hiring and capital spending, and a wide open tap on monetary stimulus,” said Avery Shenfeld, CIBC’s chief economist, in a report. “That has us projecting a sharp deceleration in U.S. growth, but not an outright recession, with a similar fate in store for Canada.” For many, though, that could be the difference between wanting a new Bimmer, and actually being able to afford it.

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