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Plunging Dow, consumer confidence: signs of 'double dip' recession?

Investors worldwide have grown more cautious about the outlook for the economy and corporate profits.

By Staff writer / June 29, 2010

A trader leans on a phone post as he works on the floor of the New York Stock Exchange, in New York, in this June 7 photo. Worries about the global economy are showing up in sagging stock prices, a plunge in US consumer confidence. The Dow Jones Industrial Average fell about 2 percent in morning trading Tuesday.

Richard Drew/AP

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Worries about the global economy are showing up in sagging stock prices, a plunge in US consumer confidence, and an investor flight to safe-haven Treasury bonds.

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The underlying concern is a simple one: Does the economic recovery have staying power, or is the risk of a double-dip recession rising?

Even though many economists see continued expansion ahead, investors have grown more cautious about the outlook for the economy and corporate profits. The Dow Jones Industrial Average fell about 2 percent in morning trading Tuesday, with the index dipping below 10,000. In April, by contrast, the Dow stood above 11,000.

The mood shift is global, fueled by challenges that have cropped up from Europe to the US and China:

  • An index of US consumer confidence fell sharply in June, the Conference Board reported Tuesday. Consumers in the survey gave more downbeat views of both their "present situation" and their outlook for the future, sending the overall index to 52.9, down from 62.7 in May. For comparison, this index was at 100 in the baseline year 1985.
  • The Shanghai Composite stock index fell 4 percent Tuesday as a leading economic indicator for the Chinese economy was revised downward. This indicator, also released by the Conference Board, still projects growth in China. But the pace could cool as the nation struggles to maintain momentum while also letting air out of a real estate bubble.
  • In Europe, concerns persist about how the Continent will manage its sovereign-debt problems. Stocks fell Tuesday there, also, and Europe's woes highlight a challenge that's global in scope: How to stimulate growth while not adding to debt burdens.

"The sovereign debt crisis in Greece is clearly jeopardising Europe’s nascent recovery from the deep recession," the Bank for International Settlements said in its annual report released Monday. The bank said such unresolved problems in the world economy "threaten to short-circuit the recovery."

This doesn't mean that a relapse into recession is the most likely scenario.

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