The big news on the economy today is Philadelphia Fed's report that its index of manufacturing fell precipitously. The index is just for the Philadelphia Fed region, so it may not be representative, but the report notes a close correlation between the Philly index and the ISM index (which is for the economy as a whole) so it's at least worth noting. In addition, the fall in the markets today, which can be attributed at least in part to this news, shows that the financial sector is taking the news and the threat of a second dip seriously.
Does this news increase the likelihood that a double dip is ahead? Perhaps, but the data on new claims for unemployment insurance which were also released today don't support the double-dip scenario. They have been stuck in the neighborhood of 400,000 for several months -- a number too low to allow the 14 million people who have lost jobs to be reabsorbed into the workplace but high enough to stop things from getting much worse -- and are therefore more consistent with being stuck at a suboptimal level of employment.
One reason that I don't like the framing of the "are we headed for a second dip" question is that it leads to a sigh of relief when we are told that we might get lucky and merely have an extended period of stagnation instead. It makes it appear that the answer to the "should we do more to help the unemployed" question depends upon whether a double dip is ahead. But an extended period of stagnation or even a slow, slow recovery (which almost seems like a good outcome at this point) are also problematic and cry out for more help for the unemployed. With so many eyes on the double-dip question, and with policy seeming to depend upon the answer, I'm worried we've forgotten how unacceptable alternative but not quite as bad outcomes would be. Unless there is a miracle recovery ahead, and that's pretty unlikely at this point, policymakers need to do what they can to increase the pace of the recovery in any case, not just if there's a double dip. In fact, policymakers should have provided more help already -- at the very least plans should be ready.
The president has promised a job creation program will be unleashed next month, but I'll believe it when I see it and it's hard not to wonder what took them so long. They can't possibly just be figuring out that they need a plan to deal with this, can they? I realize there's a legislative cycle to worry about, that they are waiting until Congress reconvene before moving forward, and it's not like this is an emergency or anything that demands immediate action. After all, the people writing the legislation have jobs, so what's the rush?
[Updated, also posted at MoneyWatch]