Double-Dip Recession

A double-dip recession is when gross domestic product (GDP) growth slides back to negative after a quarter or two of positive growth. A double-dip recession refers to a recession followed by a short-lived recovery, followed by another recession.

The causes for a double-dip recession vary but often include a slowdown in the demand for goods and services because of layoffs and spending cutbacks from the previous downturn. A double-dip (or even triple-dip) is a worst-case scenario.

From 2007 to 2009, there was widespread concern about the risk of an economic depression, but that scare has been abating. Since mid-2009, it has been replaced by the milder worry of a double-dip recession. With The Great Recession still fresh in our minds, sensitivity to the possibility of another downturn remains high.

The last double-dip recession in the United States happened in the early 1980s, when the economy fell into recession. From January to July, 1980, the economy shrank at an 8 percent annual rate from April to June of that year. A quick period of growth followed, and in the first three months of 1981, the economy grew at an annual rate of a little over 8 percent. After the Federal Reserve hiked up interest rates to combat inflation, the economy fell back into recession from July 1981 to November 1982. The economy then entered a strong growth period for the remainder of the 1980s. 
   
While the root causes of a double-dip recession vary, a slowdown in demand for goods and services due to layoffs and spending cutbacks that result from the initial dip are usually part of the cause for the second dip. Some fear a double-dip or triple-dip signals that the economy will move back into a deeper and longer recession, making a recovery even more difficult.

The Great Depression had a double-dip in the market. Book-ending the start and end dates of the Great Depression, two recessions happened, from 1929 to 1933 and 1937 to 1938. The first of these recessions was caused by tight money, and the second was caused by President Franklin Delano Roosevelt, trying to balance the budget. In addition to tight money, there were other causes of the depression, including war reparations owed by Germany and war debts owed by England and France. These massive unpayable debts combined with a mispriced return to a poorly constructed gold standard restricted global credit and trade and caused deflationary pressures.