10 Signs the U.S. Economy Is Still on Shaky Ground

It has been two years since the epicenter of the financial crisis -- the infamous weekend in mid-September, 2008, when Lehman went bankrupt, Merrill Lynch was sold and AIG virtually imploded. The crisis threw the American economy into a deep and prolonged recession.

Since then, the financial industry has regained its footing. Indeed, Goldman Sachs (GS) reported record profits in July 2009, less than a year after receiving $10 billion in bailout funds from the government (which it returned). The stock market plummeted in 2008, but then regained lost ground in 2009 and has remained stable in 2010.

Yet the U.S. economy is still on rocky shoals. Financial disaster has been kept at bay with historically low interest rates and mounds of government stimulus -- including possibly more tax cuts. Still, growth is stalling and economists increasingly fear a double-dip recession is possible. Of course, there are plenty of economic bulls out there too, including Warren Buffett, who think worries are overblown and economic activity is picking up.

To show where the American economy has been in the past two years -- and where it might be heading next -- we've compiled data from 10 key economic indicators to watch:

Gross Domestic Product (GDP)

When the easy credit that fueled consumer spending and the housing boom suddenly dried up, the U.S. economy was shunted abruptly into recession, which is technically defined as two negative quarters of negative GDP growth. Starting in the third quarter of 2008, real GDP, a measure of the annual rate of increase of goods and services produced in the U.S., went negative for four quarters in a row (the first quarter of 2008 was also revised down to show negative growth).

Economic growth returned in mid-2009, thanks in large part to massive government spending. In the fourth quarter of 2009, GDP even reached an almost overheated 5% growth rate. But since then, it has stalled. First quarter GDP increased by 3.7%. And in late August, the government reported that real GDP increased by just 1.6%, less than the 2.4% estimated initially.

Many economists believe the U.S. is in for years more of tepid growth and that additional stimulus from the government will be needed to keep the U.S. out of a double-dip second recession.

Unemployment

Want to get really depressed about the economy? Look at the chart of the unemployment rate for the past two years (below) and the dramatic spike from about 4.5% just before the financial crisis to a current rate of over 9%. A recent Labor Department report shows there are about five job seekers for every available job in the U.S. Economists say that until job creation picks up, there can be no hope of prolonged economic growth in this country.

Lately there are some early signs of improvement in the employment picture. There were six job seekers for every available job at the start of this year, so five now is at least a bit better. The temporary staffing industry is reporting stronger demand, which could be a precursor to businesses hiring more full-timers. Even more recently, initial jobless claims have fallen, coming in below expectations. The figure reported on September 9 was 451,000 claims, when economists expected 470,000 filings. However, economists want to see claims fall below 400,000 a week before they feel confident that businesses have really started hiring again.

Consumer Spending

For the average American, it still takes a great deal or a real necessity to get them to open their pocketbooks. Commerce Dept figures released Tuesday showed retail sales were up 3.6% from August 2009, driven by spending on gasoline, groceries and clothing (think back-to-school). That's a bit better than expected, but economists warn that what may sound like a meaningful percentage increase in sales is off a low base.

On a more positive note, some experts believe that as households reduce their debt burdens (and consumer debt is way down from peak financial crisis levels), they are willing and able to spend a bit more. Business inventories have even picked up as stores restock shelves, anticipating increased spending. But the market is very uneven. Wealthy people are keeping the luxury sector alive even as middle class Americans hold back on purchases.

Home Prices

We all know the housing market tanked in the aftermath of the financial crisis. Then, when the economy rebounded in mid-2009, home prices and the number of sales perked up a bit, then stabilized. The S&P/Case-Shiller Home Price Index, a measure of residential real estate, even shows a slight improvement in prices this year.

Still, many economists have a bleak outlook for the real estate market. The number of new and existing home sales plunged in July (existing-home sales fell 27.2% and July new-home sales fell 12.4% -- to the lowest rate in nearly 50 years). Many economists question a double-dip scenario in the broader economy. But in the housing market, a double-dip doesn't seem that far-fetched.

The Stock Market

Can you say 'range bound'? Stocks fell hard before the financial crises and then kept falling even after bailouts and government stimulus choked off the worst of the panic. Once economic growth returned, corporate profits followed and stocks rebounded. By April the market was getting a little too excited about the recovery and sold off when credit problems of nation's like Greece and Portugal fueled worries of a second round of global financial contagion.

Now, for all that volatility, the S&P is hovering around the 1,100 mark -- below where it was 10 years ago.

Gold

For a prettier picture, take a look at the chart of the price of gold. Sure, it dips a bit after the financial crisis hits, but then it takes off and just keeps on going. On Tuesday, gold hit a record high of $1,271 an ounce and new targets project $1,300 this year.

The problem with this picture is that gold does best when investors are most worried about the economy. It is reaching record levels because more investors are seeking a safe haven in the event the global financial picture takes a turn for the worse. So, as indicators go, the high price of gold is actually quite bearish for the U.S. economy.

Oil

Oil prices are of interest to consumers mainly as an indicator of where gasoline prices are heading. Before the financial crisis, global economic growth combined with concerns that oil production capacity was peaking led to record prices. AAA reports gas reached a high of $4.11 in July, 2008. Following the crisis, as with stock prices and housing prices, oil plummeted and gasoline prices stabilized. Regular gas is now at $2.73 a gallon nationally, according to AAA. Lower gas prices is one reason consumers may be spending a bit more at the mall.

But flat-to-down oil prices aren't all good news for the economy. Crude prices rise when investors believe a stronger economy will lead to increased demand for fuel. In that sense, today's lower oil is an indicator that the slow-growth economy is here to stay.

Interest Rates

In the wake of the financial crisis, the Federal Reserve had little choice but to reduce interest rates as a way to stimulate the economy. In 2008, the Fed Funds (the rate the Fed charges banks to lend other banks their reserves overnight) fell from 3.5% all the way to 0.25% and then just stayed there. With slowing economic growth, the Fed surely has no near-term plans to raise rates.

The 10-year Treasury, which better reflects the rates consumers pay for mortgages and other loans, has had more movement, but is still at extremely low levels. Mortgage rates remain near historic lows, for example. While interest rates are more a reflection of the current economy than an indicator, bond investors are wise to take note of one fact: There is essentially no room for rates to fall further, which means bond prices could get whacked when yields eventually rise.

Inflation

In the words of Fed Chairman Ben Bernanke, inflation is contained. With tepid consumer spending, businesses have no power to raise prices. And wage pressure, which would force companies to raise prices, is virtually non-existent. In fact, the big worry of economists in recent months has been deflation, a cycle of falling prices and slower growth as demand falls. Given that dire possibility, a forecast of continued low inflation sounds just fine to us.

Budget Deficit

What could be more depressing than the incomprehensibly huge budget deficit? This year, the government is expected to add a record $1.34 trillion to the national debt, which soared to nearly that level last year thanks to bailouts, military spending, economic stimulus and tax cuts for the wealthy. Total U.S. national debt is now at $13.45 trillion, which will have to be financed by generations to come, probably when interest rates are much higher, which will create a serious drag on U.S. growth, and some would argue, security.

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That said, recent budget news is not all bad. In August, the deficit was lower than forecast as corporations paid more taxes than expected on all those profits they've been earning. In fact, the modestly improving U.S. budget picture is actually one of the most decisive bits of improving economic news in this entire report.

With reporting by Dan Burrows, senior writer with DailyFinance.