Recent economic fragility in Europe is again prompting concern that the United States may be about to experience a "double-dip" recession. A double-dip or W-shaped recession occurs when the economy emerges from a recession, has a period of growth, but then falls back into recession, well short of a full economic recovery. This prospect raises policy questions about the current level of economic stimulus and whether added stimulus may be needed. The 2007-2009 recession was long and deep, and according to several indicators was the most severe economic contraction since the 1930s (but still much less severe than the Great Depression). The slowdown of economic activity was moderate through the first half of 2008, but at that point the weakening economy was overtaken by a major financial crisis that would exacerbate the economic weakness and accelerate the decline. When the fall of economic activity finally bottomed out in the second half of 2009, real (i.e., inflation adjusted) gross domestic product (GDP) had contracted by approximately 5.1%, or by about $680 billion. At this point the output gap—the difference between what the economy could produce and what it actually produced—widened to 8.1%. The decline in economic activity was much sharper than in the nine previous post-war recessions, in which the fall of real GDP averaged about 2.0% and the output gap increased on average to near 4.0%. The economy, as measured by real GDP growth, began to recover in mid-2009. However, over the next three years, the pace of growth has been slow and uneven. During 2009 and 2010, growth had been largely sustained by transitory factors, such as fiscal stimulus and the rebuilding of inventories by business. In the first half of 2010, economic growth showed signs of beginning to be generated by more sustainable forces such as consumer spending, business investment spending, and exports. But the strength of those forces continued to be uneven, and they weakened by the year's end. In the first quarter of 2011, growth slowed sharply to a 0.4% annual rate, largely because of a deceleration of consumer and government spending. This pronounced slowing of growth raised concern about the recovery's sustainability and the prospect of a second "dip" into recession. However, over the remainder of 2011 the pace of economic growth improved. Propelled by stronger business investment spending and a positive contribution from net exports, the pace of growth increased to a 3.0% annual rate in the fourth quarter of 2011, allaying concern about the return of recession. In the first quarter of 2012 growth slowed again, falling to a 1.9% annual pace. Growth at less than a 2% annual rate may not be fast enough to close the output gap or to keep the unemployment rate from rising. Moreover, the persistence of economic weakness in the United States, the prospect of negative spillovers here from Europe's return to recession, and a looming large dose of fiscal restraint (under current law) in early 2013 could increase the risk to the United States of an early return of recession. A recent report by the Federal Reserve Bank of San Francisco estimates the chances of a second recession during the first half of 2013 at 1-in-2. This report discusses factors suggesting an increased risk of double-dip recession. It also discusses other factors that suggest economic recovery will continue. The U.S. historical experience with double-dip recessions is also presented. Also examined is the role of deleveraging by households and businesses in the aftermath of the recent financial crisis in shaping the likely pace of economic recovery. The report concludes with a look at current economic projections. A double-dip recession in the United States is likely to be the consequence of a substantial negative economic shock to an already weak economy. In the third quarter of 2011, the economy had regained its prerecession level of output. But it took 15 quarters to accomplish this as compared to 5 quarters on average in previous post-war recoveries. However, since potential GDP has also continued to grow, the output gap over this time period has only narrowed from about 8.1% to 6.1%. Consumer spending, the usual engine of a strong economic recovery, remains tepid, generally slowed by households' ongoing need to rebuild substantial net worth lost during the housing crisis and the recession. The Federal Reserve estimates that median household net worth decreased by 38.8% during the period 2007-2010. Also constraining consumer spending was continued high unemployment and underemployment and a surge in energy prices in the first half of 2012. While consumer spending was stronger in the first quarter of 2012, this improvement was largely financed by a fall in the household rate of saving. This is unlikely to be a sustainable support for household spending. Employment conditions remain weak. The unemployment rate, which had peaked at 10.1% in October of 2009, had fallen to 8.1% in April 2012, but increased to 8.2% in May 2012. Most of the fall in the unemployment rate occurred during 2010, with essentially no net improvement during 2011 and the first quarter of 2012. Relatively weak economic growth in 2011 was only just fast enough to keep the unemployment rate from rising. An 8.2% rate of unemployment after more than three years of economic recovery is unusual and a source of concern to many. Also, some of the fall of the unemployment rate since 2009 does not reflect people finding jobs, rather it is caused by discouraged workers leaving the labor force. Another measure of labor market conditions, the employment to population ratio, which is not affected by changes in labor force participation, shows a labor market that is essentially "treading water." During the recession that ratio fell from 63% to 58%, and it has remained near that low through nearly three years of economic recovery. The housing market remains depressed. Mortgage loan foreclosures continue to rise, house prices are still falling in many regions, and millions of mortgage holders are "under water," with the market values of their houses below the amounts of their mortgages. Beyond the direct effect on economic activity through lower rates of new construction, housing market weakness has a strong negative indirect effect on the balance sheets of households and banks. The sharp fall in household net worth caused by the fall of house prices has been an important factor dampening current consumer spending and the pace of overall economic recovery. Growth in the Euro area has been weak and fiscal austerity measures to stem the growth of public debt have likely pushed the region back into recession, slowing growth there further. Slower growth in Europe, a major U.S. export market, will likely transmit a contractionary impulse to the United States, which could slow the pace of the U.S. recovery. A recent analysis by Goldman Sachs suggests that over the last year the European crisis might have already erased a cumulative 0.5 to 1.4 percentage points from U.S. GDP. The unresolved sovereign debt crisis in the Euro area remains a principal near-term risk. Economic growth in Europe has slowed substantially, with several of the regions economies likely experiencing recession. If the recession in Europe intensifies, it raises the risk of a second recession occurring in the U.S. economy. Slower growth in Europe would decrease the demand for U.S. goods. In addition, a major European sovereign debt default or bank failure would likely reverberate in U.S. credit markets and add to the dampening effect on real economic activity in the United States. The impending "fiscal cliff" would sharply slow U.S. economic growth in 2013. Fed Chairman Ben Bernanke, speaking at an April 2012 press conference, warned about the likely adverse effect on the economic recovery of the "fiscal cliff" the economy could face in January 2013. The fiscal cliff refers to the confluence of various spending cuts and tax rate increases that are scheduled to occur at the beginning of the new year under current law. The scheduled fiscal events include the end of the extension of the Bush tax cuts, the adjustment of the alternative minimum tax (AMT), the end of the Social Security payroll tax cut, reductions in Medicare reimbursement payments, and spending cuts mandated by the "sequestration" process of the 2011 Budget Control Act (BCA). CBO has estimated that the combined impact of these policy measures would be to reduce the federal budget deficit by 5.1% of GDP between 2012 and 2013. As this fiscal shock reverberates through the wider economy, CBO estimates that in the first half of 2013 real GDP growth could contract at an annual rate of 1.3%. Such a contraction would likely be judged as a recession. A 30% increase in the price of oil from October 2011 through April 2012 likely had an adverse affect on household budgets and contributed to the slow rate of increase in consumer spending over the same period. In the short run, the U.S. demand for energy is relatively inelastic, meaning there is little curtailment of energy use in the face of the rising price. As households and businesses spend more for energy, which is largely imported, they tend to spend less on domestic output, slowing economic growth. Since April 2012, the price of oil appears to have stabilized, and if it remains near the current level, the dampening effect on economic growth is likely to fade. Nevertheless, oil prices are volatile, influenced by global political events as well as economic forces. Another major spike in oil prices could tip the balance between economic expansion or contraction. China's economy is expected to slow in 2012 as the Chinese government stepped up its efforts to dampen inflation by raising interest rates for the third time this year. Slower growth in China would add to the "head-winds" generated by recession in Europe, translating into greater dampening of global demand for U.S. exports, which have been one of the few sources boosting economic activity during the economic recovery. Double-dip recessions are rare.