While optimism has been the name of the game over the last year; optimism regarding the stock market, housing market, employment market, and the economic recovery as a whole, that same optimism has begun to waver. As home sales plummet, the slightest bad news sends the stock market lower, and unemployment seems stuck near its recent highs and threatens once again to push higher, the recovery is in doubt.
Whispers of a double dip recession have started to circulate and not without good reason. There seem to be few, if any reasonable indicators left out there that are pointing to a continued recovery, and even those areas that had been showing a significant turn around are beginning waver and break.
1. Existing Home Sales
While it seemed we had finally reached a bottom in the plunging housing market, trouble signs are beginning to reappear in real estate. With the massive 27% drop in existing home sales since last year, there appears little if any reason to expect a rebound in home prices anytime soon. Even with home prices lower than they have been in years, the expiration of the homebuyer’s tax credit has left buyers with little incentive to purchase right now, and sellers left wondering if it’s time to lower prices again or just walk away from their properties completely.
The qualms felt in the real estate market are in turn having ramifications among other areas of the economy. Besides pushing more homes into foreclosure and lowering the net worth of homeowner’s, these fears are affecting consumer confidence as well. And with fewer people out there buying goods and utilizing services, companies are in turn lowering prices to induce spending, leaving the spectre of deflation looming.
2. Market Factors
Being on the cusp of the fall season means September, and in particular October, are right around the corner. Historically, these have not been the most awe inspiring of months for the stock market, even when times are good, let alone when the economy is struggling to recover. The stock market’s rise last year has been tempered this year with concerns regarding the economy. With an optimistic earnings season largely come and gone, the markets now seem to be teetering on the brink of a strong plunge to the downside. Many feel that with last year’s market comeback and this year’s ability to maintain most of those gains, the market may be overbought and ripe for a pullback.
It likely won’t take much in terms of bad news over the next several months or so to send the markets cascading downward. The buillishness of earlier this year is starting to sway, which is not surprising considering the poor economic news that continues to be reported on a regular basis. This seasonal aspect of stock market worry, paired with a weak real estate market soon to be entering the winter months, could be enough to force us into a double dip recession. While in a stronger economy a market swing might not have as large an impact upon the economy, these days it is being watched closely by many as an economic signal to cut and run.
While the government might want us to all think the unemployment rate is holding steady at 9.5%, and maybe even dropping a tenth of a percentage point here and there, many of us aren’t fooled by these numbers. We are seeing just how the unemployment rate can be skewed by the recent effects of the drop off in temporary census employees. And if consumer confidence remains low, affecting retail sales into the holiday season, we might not see the seasonal workforce pick up as it normally does, hurting employment numbers even further. With the total unemployed and underemployed numbers typically hovering lately between 16-18% or thereabout, the real numbers of those who are looking for full-time work remains depressingly high.
4. Fear and Pessimism
If we want a true indication as to whether a double dip recession is imminent, we should really turn to those around us. Just take a moment and read the comments at the end of just about any economy related news story online, and you’ll begin to get a sense for the American sentiment as to where the economy is heading. While there may be a few positive comments here and there, you’re more likely to find a number of negative comments full of fear and pessimism ranging from everything from the stock market, to housing market, job market to manufacturing numbers.
If we’ve learned anything from the recession, it may be that following the lead of others (i.e. buying homes because everyone tells us they’re a good investment) is a bad idea. However, much can still be learned from the sentiment of the masses. Ask friends and family what they’re doing with their money, how or whether they’re spending surplus cash, if they’ll be buying a new car this year or building up their savings account instead. You’ll likely find a multitude of sobering responses to your questions, and responses that will provide a much more honest and accurate view of the current economy and where it may be headed than any government statistic will provide.