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What is a double-dip recession?

Rose Conlon and Kai Ryssdal Dec 3, 2020
Heard on: Marketplace
People line up to receive a food distribution in Harlem, New York. Let's hope 2020's dismal economy is not followed by another downturn. Timothy A. Clary/AFP/Getty Images

What is a double-dip recession?

Rose Conlon and Kai Ryssdal Dec 3, 2020
People line up to receive a food distribution in Harlem, New York. Let's hope 2020's dismal economy is not followed by another downturn. Timothy A. Clary/AFP/Getty Images

Not all recessions are created equal. And as our current pandemic-fueled recession drags on and coronavirus cases continue to surge, fears of a “double-dip recession” are mounting.

So what does that mean?

“A double-dip recession is when a second recession begins before the recovery from the first recession is complete,” said Martha Olney, a teaching professor of economics at the University of California, Berkeley.

Picture the economy beginning to recover from a recession, only to be interrupted by another downturn — potentially even worse than the initial slump.

“The analogy I like to use is when you’re in the hospital and you have surgery, you come out of surgery and you’re in recovery and you’re making progress, and then all of a sudden you have a relapse,” Olney said.

The good news is that double-dip recessions are relatively rare. The last time the U.S. experienced one was nearly 40 years ago, in the early 1980s.

“The first part of the double-dip recession starts at the end of 1979, early 1980. And that’s related to interest rates being quite high in response to the second OPEC crisis, which again, drove gas prices and inflation very, very high,” Olney said.

In an attempt to curb inflation, the Federal Reserve raised interest rates, which triggered a recession. That’s the first dip.

In response, the Fed lowered rates and the economy started to recover.

But this wasn’t happening in a vacuum.

“Now, remember that 1980 is an election year. Ronald Reagan was elected the first time in November of 1980. And then early in ’81 and into ’82, under the new administration, when the battle was to really kill the inflation, the interest rates were raised even higher,” Olney said.

The federal funds rate — a key lever the Fed uses to influence interest rates — was over 20%, which stalled the recovery and brought the economy into another recession. That’s the second dip.

Which brings us to the current conversation in Congress about the next stage of economic relief — at a time when the number of people receiving unemployment benefits has topped 20 million for months.

“We know, for instance, that the unemployment insurance that people have been receiving is running out at the end of December. And so there are some serious headwinds coming in January of 2021,” Olney said.

Headwinds that include the protections against foreclosures and evictions expiring, aid to state and local governments running out and the likelihood that many of the jobs that have been lost during the pandemic aren’t coming back.

COVID-19 Economy FAQs

What are the details of President Joe Biden’s coronavirus relief plan?

The $1.9 trillion plan would aim to speed up the vaccine rollout and provide financial help to individuals, states and local governments and businesses. Called the “American Rescue Plan,” the legislative proposal would meet Biden’s goal of administering 100 million vaccines by the 100th day of his administration, while advancing his objective of reopening most schools by the spring. It would also include $1,400 checks for most Americans. Get the rest of the specifics here.

What kind of help can small businesses get right now?

A new round of Paycheck Protection Program loans recently became available for pandemic-ravaged businesses. These loans don’t have to be paid back if rules are met. Right now, loans are open for first-time applicants. And the application has to go through community banking organizations — no big banks, for now, at least. This rollout is designed to help business owners who couldn’t get a PPP loan before.

What does the hiring situation in the U.S. look like as we enter the new year?

New data on job openings and postings provide a glimpse of what to expect in the job market in the coming weeks and months. This time of year typically sees a spike in hiring and job-search activity, says Jill Chapman with Insperity, a recruiting services firm. But that kind of optimistic planning for the future isn’t really the vibe these days. Job postings have been lagging on the job search site Indeed. Listings were down about 11% in December compared to a year earlier.

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