What is meant by "Double Bottom Recession Ahead"? (February 5, 2002)

  A double bottom recession is where the economy picks up and then drops back down again before climbing out one last time to recovery. This frequently happens and is something that Greenspan is worried about and knows could happen. That is why he said no stimulus package was needed now but could be needed; if the economy drops back down he is concerned that the consumer will shut down and not pull the economy out. The irony is sad. The consumer was 'runaway' before, yet during the recession it 'kept the economy afloat' with those runaway spending habits. Now Greenspan has pinned his hopes on the consumer to keep on consuming and save the economy. Congress has as well; it certainly is not going to try and stimulate capital investment.

Now many times a double bottom recession is an illusion based on the screwy way the government maintains its records. For instance, inventories are included in GDP calculations and thus when they are big, GDP is stronger. If economic activity is increasing, inventories will fall as goods are used up; GDP falls as well. Thus we can see economic activity pick up a bit and knock inventories way down but GDP is still lower because of low inventories. The cycle is like this: high inventories with some economic activity gives a bump in GDP higher. Then inventories are worked off because of that demand reducing them, but businesses are not too eager to pump inventories back up; they let them fall. Economic activity remains the same, but inventories are down, and thus lower GDP. Looks like a double dip recession, but it is not. Problem: consumer perception. If they perceive a slowdown they may pull back once again. That is why it is important to give stimulus; add that insurance on a bit. It can always be pulled back.


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