Talk of a double dip in the US economy is no longer confined to the mutterings of super bears in dark alleys. Even top mainstream economists are now recognising that it’s a frightening possibility.

In fact, a recent report from the Goldman Sachs economics team estimates there’s more chance of that the US economy will double dip than that it will record the solid growth rates that most of the economic fraternity — including the US Federal Reserve — are still predicting.

Fears about the souring outlook for the US economy were fanned after figures released last night showed US existing-home sales plunged by a record 27.2% to their lowest level in 15 years in July. Investors responded by dumping shares, and stepping up their purchases of safer assets, such as US Treasuries.

Of course, there was always going to be some slowing in the US economy at this point, as the two factors that boosted economic growth over the past year — the restocking of inventories, and the massive spending stimulus by the US government — began to wear off. According to the Goldman Sachs economic team, “over the last four quarters, the swing from inventory liquidation to accumulation has contributed 1.9 percentage points to real GDP growth, and overall fiscal policy — federal, state, and local — has contributed a little over one percentage point to real final demand growth.” As a result these two, temporary, factors were responsible for almost all of the 3.2% growth in real GDP we’ve seen over the past year.

The problem is that activity in the private sector was meant to be picking up about now as consumers started spending more, and businesses lifted investment. But so far, consumer spending and capital investment has proved sluggish.

As Goldman Sachs notes, recent figures suggest the US economy is slowing. For instance, surveys of small businesses and regional conditions are beginning to soften, and there are signs of a sharp slowdown in job growth. As a result, Goldman Sachs predicts that US real GDP will grow at a 1.5% annualised rate in the second half of 2010, and in early 2011. And, it says, the risks to its forecast “are tilted to the downside”.

The problem is that many in the economic fraternity — official forecasters and their private brethren — are still clinging to the hope that US economic growth is going to be much stronger.

For instance, after its latest meeting, the Federal Open Market Committee, which makes important decisions about US monetary policy, said it was anticipating “a gradual return to higher levels of resource utilisation”. According to Goldman, this suggests that it is expecting economic growth of around 3% coupled with a modest decline in the unemployment rate to 9% or a little lower over the next year.

But the US Fed is not the only one with optimistic growth forecasts. The average private sector forecaster is expecting real GDP growth of 2.4% in the third quarter, and 2.7% in the fourth quarter, and they’re expecting the unemployment rate to drop from its current level of 9.5% to 8.8% by the end of the year. According to Goldman, these forecasts are overly optimistic. “We believe that the GDP forecasts will need to fall by at least one percentage point and the unemployment rate forecast will need to rise by at least one percentage point.”

If Goldman Sachs is right, the economic fraternity will soon have to start slashing its forecasts for economic growth. As Goldman Sachs notes, “such GDP revisions are likely to trigger downward revisions to the consensus forecast for corporate earnings”.

And lower forecasts for economic growth “are also likely to persuade the Federal Reserve to resume large-scale asset purchases or engage in other forms of “unconventional” monetary policy”.

Finally, Goldman asks what are the chances of a double dip? Economists always tend to discount the likelihood of a double dip because the factors that generally drag the economy into recession (such as companies cutting inventories and laying off workers, and consumers shying away from buying homes and cars) have already occurred. So there’s less room for things to deteriorate much more.

“Despite this, we continue to believe that the risk of a renewed technical recession — defined as a return to quarter-on-quarter declines in real GDP — is an uncomfortably high 25 per cent-30 per cent.”

What’s more, Goldman thinks its more likely that the US economy will experience a double-dip than that we’ll see “the trend/above-trend growth scenario envisaged in the consensus forecast”.

This post first appeared on Business Spectator.