A U.S. double-dip recession seen as unlikely

Gina Sanchez, director of equity and asset allocation strategy for Roubini Global Economics, speaks at the Reuters Investment Outlook Summit in New York, June 8, 2010.

NEW YORK (Reuters) - It is unlikely the U.S. economy will take a turn for the worse and slip back into recession, top economists and investment strategists said this week.

A disappointing jobs report last Friday coupled with the European credit crisis heightened concerns among some traders and investors that there may not be enough economic momentum to sustain the nascent U.S. recovery.

Economists and investment strategists speaking at the Reuters Investment Outlook Summit in New York played down that risk, pointing to strengthening consumer and business spending, as well as improving credit markets.

That view is shared by Ben Bernanke, chairman of the Federal Reserve, who told lawmakers on Wednesday that the United States is at low risk of a double dip, a term that refers to a recession followed by a short-lived recovery. "A double dip ... never can be entirely ruled out of course, but right now our expectation is the economy will continue to grow" about three to four percent this year, Bernanke said.

Gina Sanchez, director for equity and asset allocation strategy at Roubini Global Economics, the research and advisory firm founded by Nouriel Roubini, predicts the government will do what it can to support the recovery. "That includes keeping rates easy," she said. "We see the probability of a double dip as low."

The World Bank on Wednesday said a double-dip recession could not be ruled out in some countries if investors lose faith in efforts in Europe and elsewhere to tackle rising debt levels. The World Bank's Global Economic Prospects 2010 report said slower growth in developed economies would deprive developing countries of healthy markets for their goods and would cut into investment.

U.S. central bank officials have said they expect turmoil in European debt markets to have a limited impact on U.S. economic growth, but markets have remained jittery.

Amid growing concern over the European debt crisis, net new inflows in SPDR Gold Shares ETF totaled $4.35 billion in May - nearly matching record highs reached in February 2009 of $5.6 billion and the $4.6 billion of March 2009.

All told, Birinyi Associate's Jeff Rubin noted that a double-dip recession is actually "very rare."

The sole example he could recall was in the early 1980s: The economy expanded from March 1975 through January 1980, then entered a recession that lasted just six months. That recession was the shortest of any in U.S. history as declared by the National Bureau of Economics Research.

Rubin said the best indicator to buttress his point that a double dip is not in the offing are the stock price rallies of consumer-related shares, such as Coach Inc (COH.N), Tiffany & Co (TIF.N), Polo Ralph Lauren Corp (RL.N), Home Depot Inc (HD.N) and Best Buy Co Inc (BBY.N), among others. "These aren't experiencing growth because of stimulus money," he said.

Richard Bernstein, chief executive of Richard Bernstein Capital Management LLC, said jobs are key to how sustainable the recovery will be. If weekly jobless claims, his preferred employment indicator, increase, the risk of a double dip becomes much greater, he said, though for now he said that risk was low.

On Thursday, the Labor Department said the number of workers filing new applications for unemployment insurance fell less than expected last week. Initial claims for state unemployment benefits dipped 3,000 to a seasonally adjusted 456,000.

That data follows last Friday's monthly U.S. employment report showing just 41,000 private sector jobs were created in May, down from 218,000 in April and far short of expectations.

"People tend to be pretty schizophrenic" about jobs numbers, said Citigroup Inc's chief global currency strategist, Steven Englander.

"I don't think you should throw in the towel on growth just because of one month's payrolls," he said.

(Editing by Padraic Cassidy)