In a Wall Street Journal survey released last week, economists pegged the chance of the U.S. slipping into another recession at one in three—higher than at any point since the global financial crisis in 2008.
Connel Fullenkamp, director of undergraduate studies and professor of economics, and Emma Rasiel, professor of economics, both said they agree with the economists surveyed that a double-dip recession is a likely prospect.
“I think the tide has really turned in a lot of economists’ minds,” Fullenkamp said. “I’ve been pretty pessimistic all along.”
Month-to-month economic indicators have been disappointing, Fullenkamp said, with small gains lasting for a month or two before disappearing.
Fullenkamp noted that the announcement this week by the Federal Reserve of Operation Twist, a change in the Fed’s holdings of government bonds in order to stimulate the economy, shows that even the Federal Reserve’s economists have increased their estimated probability of a recession.
“The Fed has nothing left to do with interest rates since they’re already about as low as we can go, so it’s not clear how we get out of this situation easily,” Rasiel said. “I’m a little bit pessimistic.”
Rasiel said the first indicator of an approaching recession could be a downturn in the stock market. Students could be affected by a decrease in availability of off-campus jobs and jobs following graduation, she added.
Steve Nowicki, dean and vice provost for undergraduate education, is optimistic that Duke academics and student life are resilient—even in a worsening economy.
“The first recession actually had a fairly minimal impact on what we were able to do professionally here at Duke and how student life proceeded,” Nowicki said. “If one goes back to look at student newspapers from three years ago across the country, you’d see at many schools there were drastic cuts in student services—course offering went away. Almost none of that happened at Duke.”
The primary impact of the 2008 recession on Duke was the decline in value of the endowment, which lost nearly 25 percent of its value from 2008 to 2009. The endowment has recovered, but has not yet reached its peak value of $3.3 billion in November 2007.
Over the past three years, $100 million in cuts have been made across departments to respond to the University’s deficit. Officials continue to operate Duke with fiscal restraint, Nowicki said.
“At the moment, if things go back to where they were a few years ago, we’re still operating in that world still,” he said. “Having gone through the first recession, we’re ready for the second.”
Fullenkamp said Duke receives a larger percentage of its operating revenues from tuition than other schools of its caliber. Due to the fact that parents view tuition as an investment in their children’s future even during an economic downturn, Duke has been able to maintain healthy tuition revenues.
When Duke administrators examined where cuts could be made, Nowicki noted, they made a decision to preserve the core mission of the University—undergraduate education.
This meant administrators found alternative methods to pay for financial aid and programs like DukeEngage, which both relied heavily on endowment funding.
Nowicki said the Board of Trustees made a decision that whatever had to be cut, it would not be financial aid. As a need-blind institution, financial aid is a deeply ingrained mission of the University.
“James B. Duke would roll over in his grave before that would happen,” Nowicki said.
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