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 who have jobs are hurting: Their paychecks have fallen behind inflation.
Many economists say the agonizing recovery from the Great Recession, which began in December 2007 and ended in June 2009, is the predictable consequence of a housing bust and a grave financial crisis.
Credit, the fuel that powers economies, evaporated after Lehman Brothers collapsed in September 2008. And a 30 percent drop in housing prices erased trillions in home equity and brought construction to a near-standstill.
So any recovery was destined to be a slog.
“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 U.S. economy has other problems, too. Europe’s troubles have undermined consumer and business confidence on both sides of the Atlantic. And the deeply divided U.S. political system has delivered growth-chilling uncertainty.
The Associated Press 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 aren’t comprehensive, although the available data show that hiring was robust. There were two short-lived recoveries – 24 months and 12 months – after the recessions of 1957-58 and 1980.
Here is a closer look at how the comeback from the Great Recession stacks up with the others:
America’s 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 aren’t 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.
That’s because the overbuilding of the mid-2000s left a glut of houses. Prices fell and remain depressed. 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.
Three years into previous postwar recoveries, government spending had risen an average 12.5 percent. In the first three years after the 1981-82 recession, during President Ronald Reagan’s first term, the economy got a jolt from a 15 percent increase in government spending and investment.
This time, state and local governments have been slashing spending – and jobs. And since passing President Barack Obama’s $862 billion stimulus package in 2009, a divided Congress has been reluctant to try to help the economy with federal spending programs. Trying to contain the $11.1 trillion federal debt has been a higher priority.
Since June 2009, governments at all levels have slashed 642,000 jobs, the only time government employment has fallen in the three years after a recession. This long after the 1973-74 recession, by contrast, governments had added more than 1 million jobs.
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.
It’s 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 home equity 49 percent, from $13.2 trillion in 2005 to $6.7 trillion early this year.
“We were in a period in which we borrowed too much,” says Carl Weinberg, chief economist at High Frequency Economics. “We are now deleveraging. That’s a process that slows us down.”
THE JOBS HOLE
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 that recession ended, the economy added 9.8 million – replacing the 2.8 million and adding 7 million more.
Federal Reserve Chairman Ben Bernanke has called long-term unemployment a “national crisis.” The longer people remain unemployed, the harder it is to find work, Bernanke has said. Skills erode, and people lose contact with former colleagues who could help with the job search.
Usually, workers’ pay rises as the economy picks up momentum after a recession. Not this time. Employers don’t have to be generous in a weak job market because most workers don’t have anywhere to go.
As a result, pay raises haven’t kept up with even modest levels of inflation. 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. Consumer prices have risen nearly 7.2 percent. Adjusted for inflation, wages have fallen 0.8 percent. In the previous five recoveries —the records go back only to 1964 — real wages had gone up an average 1.5 percent at this point.
Falling wages haven’t 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.
It’s tough to compare the current recovery with the 1933-37 version. Economic figures comparable to today’s go back only to the late 1940s. But calculations by economist Robert Coen, professor emeritus at Northwestern University, suggest that things were far bleaker during the recovery three-quarters of a century ago: Coen found that unemployment remained well above 10 percent — and usually above 15 percent — throughout the 1930s.
Only the approach and outbreak of World War II — the ultimate government stimulus program — restored the economy and the job market to full health.
Big changes, small Growth
Despite weak job growth in the three years since the recession officially ended, unemployment rates for most groups of Americans – white, black and Hispanic, young and old – have fallen. But their rates haven’t fallen equally or for the same reasons.
• Asian-Americans have enjoyed the sharpest drop in unemployment, followed by Hispanics and whites.
The unemployment rates for Asians and Hispanics fell because more people in each group found jobs. But the rate for whites fell for a different reason: More of them stopped looking for jobs or left the workforce for other reasons, such as retirement. People who are out of work aren’t counted as unemployed if they’ve stopped looking for a job.
• The unemployment rate for blacks fell the least. More blacks got jobs. But unlike other groups, the number of unemployed blacks also rose. That suggests that unemployed blacks weren’t as likely as others to give up their job searches and leave the work force. The proportion of African Americans in the workforce fell the least for any group.
• Among age groups, Americans ages 55 and older have fared best since the recession ended. Their unemployment rate hasn’t fallen as much as for those ages 25-54. But it’s dropped for a more encouraging reason: More of them are employed. By contrast, the unemployment rate for those ages 25 through 54 has fallen mostly because more of them stopped looking for a job.
• Among industries, the one that’s produced the most jobs in the past three years has been temporary help services. Temp jobs have jumped 45 percent. No other industry is even close. Economists generally view more temp hiring as an encouraging sign, because companies usually add temps before they hire permanent workers.
• The next-biggest source of job gains is educational services. This category consists of employees at colleges, universities and other private education providers. Such jobs have grown 7.5 percent since June 2009. Public school teachers and administrators are counted among local government employees. Peter Diamond, Nobel Prize-winning economistChristopher S. Rugaber, The Associated Press