Though global equities have rallied modestly after a sharp plunge in May and June and companies have announced strong earnings, sentiment about the future remains gloomy. In response to intense concerns about a looming double-dip recession, business leaders have complained to White House officials that government policy is inhibiting job creation and that uncertainty about new regulations is discouraging them from investing their $1.8 trillion in accumulated corporate cash. On the flip side, Democrats in Congress effectively cornered the Republicans to extend unemployment benefits yet again, a direct response to the undeniable fact that the unemployed are facing a severe challenge to find work.
What should be most striking about these concerns, however, is how little they matter. A double dip is a period of economic contraction that follows a brief recovery after a recession. It's a useful prop for framing economic and political debates but doesn't describe what's actually happening across the country. The reality is that if you are doing well in this economy, either as a company or an individual, you will continue to do well regardless of a statistical double dip. If you are doing badly, you will continue to struggle whether or not the economic data are improving.
GDP has been expanding since the third quarter of last year, graced by government spending and a steady though diminished level of domestic consumption. But as we all know, that growth 5.6% in the fourth quarter of last year and 2.7% in the first quarter of this year has been accompanied by high unemployment and little job creation. In short, this has been an economic recovery that has felt like a continued recession.
That's because for a significant portion of the population, it is a continued recession. Not only is the real unemployment rate (combining workers who have dropped out of the workforce and the headline numbers, together with workers classified as marginally attached to the workforce) in the midteens, but the amount of hours worked has declined, as have many incomes. If you combine that with the scarcity of consumer credit and the uncertainty about the social safety net, tens of millions of Americans are facing a grave economic future. Particularly for men who lack a college education and were or are in an industry that depends on manual labor (construction and manufacturing above all), this is a perilous time.
But for tens of millions of others, there is no recession. For the college-educated, the unemployment rate is 4.4% (for college-educated women, less than that). For them, wages have been rising, since more-skilled workers command higher salaries and industries ranging from technology to health care have been hiring and expanding. Those workers are enjoying in relative moderation the fruits of modern society, including owning homes, buying millions of cool gadgets like iPhones and BlackBerrys, taking summer vacations, sending their children to costly but worthy colleges and worrying over their retirement accounts, which means that they have retirement accounts to worry about.
And then there are millions of others who fall on the spectrum in between. Very few of these groupings will be altered by a double-dip recession. If the economy expands by 3% over the next quarters, there is little indication that the millions currently struggling or the many more in limbo will suddenly be less in limbo. Nor is there any reason to suppose that companies will suddenly start hiring again. They have integrated productivity-enhancing technologies, understand the dynamics of inventories and had been trimming workforces for years before the 2008-09 crisis. Better policy from Washington won't change that; nor is worse policy truly the cause of it, though it is a convenient excuse.
On the flip side, if the economy contracts a bit, there is no reason to expect fewer iPads will be bought. After all, save for a brief few months at the very end of 2008 and the very beginning of 2009, the economic activity of the haves showed remarkable resilience. While contraction will lead to more negative sentiment, sentiment is already negative and is not a reliable indicator of activity. People can feel bad and spend money and often do.
So the double-dip question is yet another rabbit hole that distracts from the structural realities and challenges that the U.S. and the rest of the world faces. The debate speaks to a false belief that our macro statistics tell us something truly meaningful when in fact they are no better than shadows of shadows that offer at best a blurry facsimile. Until we begin to have a discussion about the multiple economies that constitute the U.S., our attitudes and our answers will fail to generate the desired and shared outcome of a more secure and prosperous future for all.