Three months ago, things were looking brighter for the stock market as a whole, and Lynchburg-area stocks, too.
The Dow Jones Industrial Average was approaching 11,000 points, nearly double its 2009 low, and The News & Advance Stock Index — the average price of 25 companies of interest in the Lynchburg area — was 54 percent higher than April 2009.
But since then the market, including local stocks, took a dive beginning in May, raising speculation of a “double-dip recession,” in which the economy would start to climb, only to fall again.
There is nothing new about that speculation, said Joseph Turek, dean of the School of Business and Economics at Lynchburg College.
“There has never been a recession when someone didn’t start shouting double dip,” Turek said.
“Some of what we’re hearing is alarmist,” he said. “However, that doesn’t mean it’s not going to happen.”
Turek said the National Bureau of Economic Research, which determines when recessions begin and end, has no official declaration or definition of a double-dip recession. Really, the phrase refers to an economic recovery that falters slightly, he said.
Turek believes the national economy has begun to recover, but that events on the world stage threaten to derail it.
China’s economic growth has slowed down, national debts in Europe could destabilize financial markets and European countries seeking to deal with those debts might cut their spending, Turek said. “Because the world economy is integrated, that’s going to be like putting brakes on the economy,” he said.
The bad news: if these factors do drive the U.S. back into a recession, there would be little the country could do to recover. Interest rates are as low as the Federal Reserve can push them, and there is little room in the federal deficit for more stimulus spending, he said.
The good news: Turek does not think these economic factors will actually create another recession.
“I think that we’re far enough into recovery that there are these forces keeping us in motion,” Turek said.
As for falling stock prices, Turek and other economists sometimes joke that, “the stock market has predicted nine out of the last five recessions.” Turek said stock prices can be driven, up or down, by speculation.
One role it does play in the economy is its influence on people’s assets and feelings. Turek called that the “wealth effect.”
“As people’s financial situation improves, they’re going to go out and spend money.”
On Thursday, the Dow Jones Industrial Average closed at 10,138 points, about 24 percent higher than one year ago. The News & Advance Stock Index closed at $30.30, about 30 percent higher than one year ago.
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