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Coming Week: Double-Dip Days

Traders are beginning to think we're only in the first of two economic downturns.

Watch out for the "W" economy.

No, it's not about President Bush -- it's the idea that the U.S. will have two economic dips, with stagnation or even recession each time. Some people say we're only in the first of those dips now.


Federal Reserve

meeting minutes from last week showed that policy makers are concerned about inflation. With oil prices breaking $135, and other commodities, such as food and metals, also at highs, it doesn't look as though consumers are going to get much relief anytime soon.

"I think the fact that the last rate-cut vote was that close surprised people," says Vinny Catalano, chief investment strategist at

Blue Marble Research

. "The tone of the minutes" was more hawkish than might have been expected, and "the concern is there regarding inflation -- which we know was on their minds, but it's a little more so than we thought."

"I don't think the Fed has to do anything to lower inflation," says Ethan Harris, chief U.S. economist at

Lehman Brothers

. "They just have to wait for the weak economy to do the job... inflation usually peaks in the middle of a recession."

The first-quarter preliminary gross domestic product figure will be released on Thursday in the holiday-shortened week ahead. The advance figure was 0.6%, creating a positive surprise for markets that had guessed the U.S. economy would be entering a recession already. Many observers expect that number to be revised upward again; market-analysis group

is looking for 1%.

But now, some economists are looking for weakness in the second quarter, and then again early in 2009.

The economic dips that form the "W" will include one that's going on right now, and "one at the beginning of next year, when the tax rebates stop stimulating the economy," Harris says.

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Catalano thinks the worst is yet to come.

"It's a lopsided W," Catalano says. "I think it's going to be a full-blown, bad recession into next year." He cites the deep woes in the housing market, the credit crunch and consumer strain as combining with inflation to pack a vicious punch at the start of next year.

Some market observers don't believe things are so tough.

Wendell Perkins, chief investment officer at

Optique Capital Management

, which has $1.4 billion in assets under management, doesn't foresee a recession at all.

"Things are tough, but they're not that bad," he says. The stock market in particular is "the most attractive we've seen in 20 years."

But those percolating problems could still have a huge impact down the road.

Nigel Gault, chief U.S. economist at

Global Insight

, says "the worry is that things may get worse in coming months as we see more pass-through from these high oil prices."

"There's no single price that is some sort of threshold at which the impact suddenly changes," Gault says. "But the higher the oil prices, the higher gas prices go, the bigger the squeeze on the consumer and the more the economy will be affected."

In terms of the consumer, economists are watching a conundrum, according to Harris: "One of the big puzzles in the U.S. economy is, how is it we have such horrible consumer confidence ratings and consumer spending has only slowed moderately?"

Some answers may come this week. Consumer confidence data will be released by the

Conference Board

on Tuesday and by the University of Michigan survey on Friday, and data are expected to remain weak. But the

Department of Commerce

will bring out data on personal consumption and expenditures as well. Any surprises in those reports may help resolve things in one direction or another.

New-home sales data for March come out from the

Census Bureau

on Tuesday. With recent numbers showing prices falling and inventory still surging, things aren't looking good for the sector.

"I think it's been a mistake for people to take their eye off the housing market," Harris says. "There's a sense that we'll forgive any bad news, and things will get better. The reality is that the housing market has been much worse than expected, and this is still the key headwind for the economy."

Most of the earnings news in the week will be about the retailers, which naturally depend on consumers as their lifeblood. On the high-end side,


(TIF) - Get Tiffany & Co. Report

releases results on Friday.

If customers are getting squeezed because of higher gas and food prices, the upscale retailers might suffer before some of the discounters. It will be interesting to compare their results with those of

Dollar Tree

(DLTR) - Get Dollar Tree, Inc. Report

, which reports on Wednesday, as well as the numbers from

Big Lots

(BIG) - Get Big Lots, Inc. Report



(COST) - Get Costco Wholesale Corporation Report

, which are slated for release on Thursday.

Clothing stores are on the earnings docket, too, with

American Eagle

(AEO) - Get American Eagle Outfitters, Inc. Report


Men's Wearhouse


on Wednesday, and

J. Crew



Wet Seal


on Thursday.