The Recovery Is Real

Article excerpt

Byline: Daniel Gross

Why fears of a second recession are overblown.

In the past month, several unfortunate phrases have joined the lexicon, including "top kill," "Gore divorce," and "double-dip recession." On the Today show on May 21, CNBC's volatile James Cramer increased his odds of the economy's suffering a relapse from 25 percent to 35 percent. At a mid-May investment conference, Robert Arnott, chairman of money manager Research Affiliates, predicted that "there's a better than 50 percent chance that we will see a second dip in the economy." Google searches for "double-dip recession" have spiked.

And why not? GDP grew at a 3apercent rate in the first quarter, down sharply from 5.6 percent in the fourth quarter of 2009. The Conference Board Leading Economic Index (LEI) fell in April by 0.1 percent, the first downturn since March 2009. The debt crisis that began in Athens is threatening to tear the euro zone asunder. (Beware of Greeks bearing rifts!)

But if you want a double dip this summer, you'll have to go to Carvel. "The scenario in which there is a double dip is fairly remote," says Joel Prakken, managing director and cofounder of Macroeconomic Advisers, the St. Louis-based consulting firm. "I just can't really see it happening unless there is an extreme crisis of confidence."

To a degree, the crisis of confidence that began in the summer of 2008 never really ended. And that accounts for a chunk of the concern over a double dip. Our muscle memory impels us to extrapolate a few bad data points into a debacle. Think of how the meaning of an engine backfiring in lower Manhattan changed after September 11. Every time we see a punk housing number, a European government wobbling, or a sickening 1,000-point flash crash, our minds fly back to September 2008--and we imagine the worst.

The tapering off of GDP growth is natural as recoveries mature. We live in an age of long expansions--the past two have lasted 120 and 92 months, respectively. But a chart showing quarterly GDP growth presents a saw-tooth pattern. The business cycle proceeds less like a professional runner tackling the New York City Marathon who ticks off each mile at a steady six-minute pace, and more like your author, who tore through the first half at a seven-minute pace, bonked in the Bronx, and rallied toward the finish line. …