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For immediate release: December 1, 2010

Dallas Fed: Key Indicators Show Double-Dip Recession Unlikely in Near Future

DALLAS—Despite tepid economic growth, several key indicators show a recession in the near future is unlikely, according to the latest issue of the Federal Reserve Bank of Dallas’ Economic Letter.

In “Gauging the Odds of a Double-Dip Recession Amid Signals and Slowdowns,” Harvey Rosenblum and Tyler Atkinson examine three important indicators that have a good history of forecasting a recession:

  • An inverted yield curve in the previous year;
  • An unemployment rate jump;
  • An oil-price shock in the previous year.

There have been 20 economic slowdowns similar to the current one since 1955, with nine leading to a recession, Rosenblum and Atkinson state.  All of those nine slowdowns were preceded by at least two of the indicators flashing a warning signal, the authors say.

None of the signals are present in the current slowdown, Rosenblum and Atkinson find. Still, concerns of a double-dip recession persist.

Many economists are currently reluctant to rely on the yield curve as an indicator because the curve’s shape and slope have been distorted by the Federal Reserve’s unconventional monetary policy, the authors find. Claims for jobless benefits also remain at a level associated with an increasing unemployment rate.

In addition, while the current real price of oil does not fit the criterion for a shock, it remains at levels only seen in the early 1980s and 2006–2008, the authors state.

Most forecasters project growth at 2 to 3 percent over the next year, but not gaining sufficient momentum to advance safely above the U.S. economy’s 2 percent “stall speed,” the authors say.

 “Until this situation is resolved, policymakers will continue facing pressure to pursue fiscal and monetary measures to guide the economy toward full employment and more robust growth,” Rosenblum and Atkinson write.

Rosenblum is director of research and an executive vice president at the Dallas Fed and Atkinson is a research assistant.


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