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July 21, 2010, Cover Stories, Research

On Second Thought, Make That a Single-Dip

By Kerry Pechter   Wed, Jul 14, 2010

Vanguard analysts put the chance of a double-dip recession at about 20%. The bond yield curve suggests only a 6% risk, but the yield curve isn't as reliably predictive as it used to be, they say.

Although the consensus economic forecast is for a strengthening recovery, researchers at the Vanguard Group calculate the chances of a “double-dip” recession in the second half of 2010 at about 20%.

In their June Research Note, “Assessing the risks to the U.S. economic recovery,” Vanguard researchers said that “most leading indicators continue to project a modest ‘U-shaped’ recovery” but added that “actual economic growth statistics should provide more volatile than the consensus growth trajectory.

“Current U.S. stock market prices anticipate a weaker-than-expected recovery while the bond market has already priced in a much stronger-than-expected recovery,” wrote the Note’s authors, Joseph H. Davis, Ph.D., Roger Aliaga-Diaz, Ph.D., Andrew J. Patterson and Charles J. Thomas.  

The stock market is pointing to as much as a 34% chance of negative growth going forward, while the bond market, as expressed by the shape of the yield curve and corporate bond spreads, suggests as little as a 6% probability of a double-dip, according to Vanguard's indexes.   

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