Double-Dip Recessions Happen Extremely Rarely in the United States
August 4, 2010
Based on their actual frequency, double-dip recessions are easier to imagine than to produce. In the early recovery stage of an economic expansion, investors invariably wonder and analysts often warn about the possibility of a quick relapse into a new economic downturn, or what’s popularly called a double-dip recession. An interval of one year or less between the end of one recession and the beginning of the next downturn occurred just three times in the nineteenth century, each time in the first half of that period. There were just two such double-dip recessions in the twentieth century, separated by slightly more than sixty years of history. A recession began in January 1920, just ten months after the prior one ended. The business cycle in that period was distorted by the conversion from a wartime footing to peacetime.
The second double-dip recession of the 20th century some thirty years ago also was associated with an artificial distortion. A recession beginning in January 1980 developed from natural causes — the second oil price shock and the Fed’s adoption of quantitative tightening to counter inflation — and was amplified sharply by the imposition of credit controls in March 1980. The controls promoted a multi-hundred basis point decline in U.S. interest rates during the second quarter, which aborted the recession. In panic, meanwhile, the credit controls were lifted in July 1980, the month when the initial recession ended. Over the second half of 1980, upward pressure on interest rates and inflation resumed, Carter lost his bid for reelection, and by July 1981, a new recession commenced, again from natural causes.
In all, five genuine double-dip recessions occurred in the space of 210 years, a span when 41 other recessions also took place, each separated from the next by more than one year’s time. The recession of 1937-8 is often misconstrued as a double-dipper because the entire 1930’s didn’t feel like expansion given the high, albeit falling, level of unemployment. In fact, over four years separated the end of the Great Depression in March 1933 and the start of the next recession in May 1937. The more appropriate nomenclature for the latter business cycle is the “recession within the depression.” With unemployment that again shot above 20%, the 1937 recession was much worse than what the United States experienced in 2008-09, but it was moderate in comparison with deteriorating conditions in 1929-33.
Market chatter seems to mistake the term double-dip recession in a different way. No doubt, some think the expression implies to a sequence of adjacent calendar quarters containing quarters in which real GDP contracts, then expands, and contracts some more again. Since recessions are designated according to the behavior of several criteria besides real GDP — for example, employment — it is not uncommon to find one or more positive quarters imbedded within a single recession, but that doesn’t create a double-dip recession. The aforementioned 1981-82 recession, for example, had a sequence of a down quarter, an up quarter, two down quarters, an up quarter, and one final quarter of contraction. The punctuated pattern did not make that a double-dipper. Rather it was the fact that a separate self-contained recession had ended just twelve months earlier. Similarly the recession of 2001 saw GDP contract in both 1Q01 and 3Q01 but rise during 2Q01. Note that it’s been designated as an official, albeit single, U.S. recession despite meeting the layman’s quick definition of at least two consecutive quarters of contracting GDP.
Copyright Larry Greenberg 2010. All rights reserved. No secondary distribution without express permission.
Tags: U.S. recessions
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