Article - 8 Problems That Could Trigger a Double-Dip Recession - US News & World Report

I hope that everyone was able to enjoy a safe and happy 4th of July weekend with friends and family! While back home over the holidays, I did find a little bit of time to do some reading and ran across this article out of US News & World Report that talks about a number of factors that are affecting our economic recovery and the things that need to go right in order to continue towards a stable economy. I've posted a few excerpts and a link to the full article...

With stock prices spiraling downward and treasury yields tanking, the market has been sending a clear message this week: The fragile economic recovery is in trouble. But just how bad is the outlook? In the aftermath of a bleak second quarter, experts are still divided about the likelihood of a double-dip recession. What's becoming clearer with each new report, though, is that the economy--even if it doesn't double dip--is steadily losing ground.

The economic souring is, of course, being spearheaded by a familiar cast of characters: An anemic labor market, a skeptical consumer base, a weak housing market, and a global debt crisis that threatens to overwhelm national governments, just to name a few. Further deterioration in even one of these arenas could be enough to trigger a double-dip, which is loosely defined as a period during which a recovery is interrupted by economic contraction, usually in the form of negative GDP growth.

For investors, a double-dip, if it materializes, would be a throwback to 2008, with a floundering economy punishing stock returns. Jeff Tjornehoj, Lipper's research manager for the United States and Canada, says the Dow Jones industrial average could touch 9,000 by the close of 2010. "Is it reasonable to expect it? I think it's reasonable to put some odds on it," he says.

With that in mind, U.S. News has examined eight phenomena which, given the right conditions, could send the economy--and the financial markets--reeling.

1. Unemployment. In the aftermath of a recession that wiped out 8 million jobs, the lackluster labor market has perhaps been the biggest thorn in the side of a sustainable economic recovery.
2. Housing. In early 2009, President Obama introduced a first-time home buyer tax credit of $8,000 that was later extended to any qualified buyers who signed a sales contract by April 30 of this year. That tax credit, like other stimulus programs, has expired, and it's left many experts wondering whether or not the upsurge in home buying will continue.
3. Expiration of stimulus. One of Obama's first acts as president was to authorize a massive stimulus package that cost $787 billion. It included a number of provisions that were intended to help jumpstart the economy. Some economists are concerned that the stimulus plan is the only thing driving GDP growth in the United States.
4. Spending cuts. At last week's G-20 summit, countries from around the world pledged to cut their deficits over time. Everyone agrees that it's a noble goal, but experts are torn over when it's appropriate to begin cutting spending. Many countries in Europe, most notably Greece and Spain, have already begun instituting austerity programs (through a combination of spending cuts and tax hikes) because of their enormous budget deficits.
5. Tax hikes. Most experts say it's not a question of whether taxes will go up in the United States, it's more a question of when. The Bush tax cuts will expire at the end of the year. If they lapse, taxes will go up. Research has shown that there is a 3 to 1 ratio that can be applied to how tax hikes affect GDP growth, according to Arnott.
6. Consumer confidence. A recent report by the Conference Board shows that consumer confidence is plummeting. In June, the group's Consumer Confidence Index dropped by nearly 10 points, its second-biggest one-month decrease in a year.
7. Consumer spending. Poor consumer sentiment generally translates into stagnant spending levels. Recent data from the Commerce Department suggests that Americans are dialing back their spending and tucking more money away in savings accounts.
8. European debt crisis. For the time being, the European Union faces the most imminent sovereign debt threat. Spain, Portugal, and Greece have all seen their debt downgraded in recent months. Greek debt is now valued at "junk" status.

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