WASHINGTON – The recession that ended three years ago this summer has been followed by the feeblest economic recovery since the Great Depression.
Since World War II, 10 U.S. recessions have been followed by a recovery that lasted at least three years. An Associated Press analysis shows that by just about any measure, the one that began in June 2009 is the weakest.
The ugliness goes well beyond unemployment, which at 8.3 percent is the highest this long after a recession ended.
Economic growth has never been weaker in a postwar recovery. Consumer spending has never been so slack. Only once has job growth been slower.
More than in any other post-World War II recovery, people with jobs are hurting: Their paychecks have fallen behind inflation.
Many economists say the agonizing recovery is the predictable consequence of a housing bust and a grave financial crisis.
A housing collapse is very different from a stock market bubble and crash, says Nobel Prize-winning economist Peter Diamond of the Massachusetts Institute of Technology. It affects so many people. It only corrects very slowly.
The AP compared nine economic recoveries since the end of World War II that lasted at least three years. A 10th recovery that ran from 1945 to 1948 was not included because the statistics from that period arent comprehensive, although the available data show that hiring was robust.
Here is a closer look at how the comeback from the Great Recession stacks up with the others:
Americas gross domestic product – the broadest measure of economic output – grew 6.8 percent from the April-June quarter of 2009 through the same quarter this year, the slowest in the first three years of a postwar recovery. GDP grew an average of 15.5 percent in the first three years of the eight other comebacks analyzed.
The engines that usually drive recoveries arent firing this time. Investment in housing, which grew an average of nearly 34 percent this far into previous postwar recoveries, is up just 8 percent since the April-June quarter of 2009.
Thats because the overbuilding of the mid-2000s left a glut of houses. The housing market has yet to return to anything close to full health even as mortgage rates have plunged to record lows.
Government spending and investment at the federal, state and local levels was 4.5 percent lower in the second quarter than three years earlier. But three years into previous postwar recoveries, government spending had risen an average of 12.5 percent.
In the first three years after the 1981-82 recession, during President Ronald Reagans first term, the economy got a jolt from a 15 percent increase in government spending and investment.
This time, state and local governments have slashed spending – and jobs.
And since passing President Obamas $862 billion stimulus package in 2009, a divided Congress has resisted trying to help the economy with federal spending programs. Trying to contain the $11.1 trillion federal debt has been a higher priority.
Spending, jobs lack
Consumer spending has grown just 6.5 percent since the recession ended, feeblest in a postwar recovery. In the first three years of previous recoveries, spending rose an average of nearly 14 percent.
Its no mystery why consumers are being frugal. Many have lost access to credit, which fueled their spending in the 2000s.
Home equity has evaporated and credit cards have been canceled. Falling home prices have slashed equity from $13.2 trillion in 2005 to $6.7 trillion early this year.
Others are spending less because theyre paying down debt or saving more. The savings rate has risen from 1.1 percent of after-tax income in 2005 to 4.4 percent in June. Consumers have cut credit card debt by 14 percent – to $865 billion – since it peaked at more than $1 trillion in December 2007.
We were in a period in which we borrowed too much, says Carl Weinberg, economist at High Frequency Economics. We are now de-leveraging. Thats a process that slows us down.
The economy shed a staggering 8.8 million jobs during and shortly after the recession. Since employment hit bottom, the economy has created just over 4 million jobs.
So the new hiring has replaced 46 percent of the lost jobs, by far the worst performance since World War II. In the previous eight recoveries, the economy had regained more than 350 percent of the jobs lost, on average. During the 1981-82 recession, the U.S. lost 2.8 million jobs. In the three years and one month after it ended, the economy added 9.8 million.
Never before have so many Americans been unemployed for so long three years into a recovery. Nearly 5.2 million have been out of work for six months or more. The long-term unemployed account for 41 percent of the jobless; the highest mark in the other recoveries was 22 percent.
Gregory Mann, 58, lost his job as a real estate appraiser three years ago.
Basically, I am looking for anything, he says. He has applied to McDonalds, Target and Nordstroms. Nothing, not even a rejection letter, he says.
Usually, workers pay rises as the economy picks up momentum after a recession. Not this time. Employers dont have to be generous in a weak job market because most workers dont have anywhere to go.
Earnings for production and nonsupervisory workers – a category that covers about 80 percent of the private, nonfarm workforce – have risen just over 6.2 percent since June 2009. But consumer prices have risen nearly 7.2 percent, so adjusted for inflation, wages have fallen 0.8 percent.
In the previous five recoveries – the records go back only to 1964 – real wages had risen an average 1.5 percent at this point.
Falling wages havent hurt everyone. Lower labor costs helped push corporate profits to a record 10.6 percent of U.S. GDP in the first three months of 2012, according to the Federal Reserve Bank of St. Louis.
And those surging profits helped lift the Dow Jones industrials 54 percent from the end of June 2009 to the end of last month. Only after the recessions of 1948-49 and 1953-54 did stocks rise more.
But savings are still getting squeezed by the rock-bottom interest rates the Fed has engineered to boost the economy.
The money Americans earn from interest payments fell from nearly $1.4 trillion in 2008 to barely $1 trillion last year – a drop of more than $370 billion, or 27 percent. That amounts to shrinking income for many retirees.
Washington isnt doing much to help the economy. An impasse between Obama and congressional Republicans brought the U.S. to the brink of default on the federal debt last year – a confrontation that rattled financial markets and sapped consumer and business confidence.
Now, sharp tax increases and spending cuts are scheduled to kick in at years end unless Congress and the White House reach a budget deal.
In the meantime, its difficult for consumers to summon the confidence to spend and businesses the confidence to hire and expand.
Never in the postwar period has there been so much uncertainty about what policymakers will do, says Steven Davis, an economist at the University of Chicago Booth School of Business: No one is sure what will actually happen.