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Odds of a double-dip recession are still high

@CNNMoney August 5, 2011: 11:54 AM ET
Unemployment rate falls to 9.1% in July, risk of double-dip recession still high

Even after the unemployment rate fell in July, economists say the risks of a double-dip recession are still high.

NEW YORK (CNNMoney) -- Cue the collective sigh of relief! A government report showed the job market fared better than expected in July.

After rising for three straight months, the unemployment rate fell to 9.1% in July, beating economists' forecasts.

Could our fears of a double-dip recession possibly be over?

Not so fast.

"July's employment report will go some way to reducing fears that the economy is slipping into another recession," Paul Dales, senior U.S. economist with Capital Economics, acknowledged in a note to clients.

But he was quick to follow it up with these words of caution.

"But it highlights that the labor market has hardly recovered at all from the recession and that the economy is not growing fast enough to reduce significantly the unemployment rate," he said.

July jobs report: Hiring picks up

Economists often say the economy needs consistent growth of 150,000 jobs each month, before the unemployment rate comes down. In the case of this July, only 117,000 jobs were created. The unemployment rate did come down -- to 9.1% from 9.2% -- but it was due to other not-so-encouraging reasons.

Rather -- points out economist Nouriel Roubini via Twitter -- it was because nearly 200,000 people were no longer counted in the unemployment calculation. They left the labor force -- either to retire, go to school or just because they gave up on their job search altogether.

Known for predicting the 2008 financial crisis, Roubini also told Bloomberg TV Friday morning, that he still puts high odds on a double dip even after the jobs report came in better than expected.

"I think it's a pretty lousy report," Roubini said. "We're at a stall speed and probably there's more than 50% probability of a recession in the next 12 months."

Evidence has been mounting for over a month now, showing the recovery has hit a speedbump and is slowing. Last week, the government revised down its GDP numbers, showing the economy grew a measly 0.4% in the first quarter and only 1.3% in the second. Consumer spending has barely picked up and the manufacturing sector practically stood still in July.

Teaching jobs disappear

Add to the mix, steep government spending cutbacks, and the unlikelihood of any substantial help from the Federal Reserve, and the experts are wary of where the U.S. is headed.

In the last few weeks, other prominent economists Larry Summers and Martin Feldstein have also come forward, warning that the risks of another recession are growing.

Summers put the chances of a double dip at one-in-three and Feldstein at 50%.

Others say, with roughly 14 million people still unemployed, the often-cited June 2009 end to the recession can be thrown out the window.

"We're already in the middle of a recession in every sense that a human being can understand," said Lawrence Mishel, president of the Economic Policy Institute. "Given that fact -- I never understood the idea of a double dip to begin with." To top of page

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