U.S. Economic Recovery Is Weakest Since World War II
By PAUL WISEMAN 08/15/12 11:58 AM ET AP
"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, too: 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 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 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:
"FEEBLE GROWTH
"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."
"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. 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.
"Stock investments may be coming back, 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 isn't 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.
"Given the political divide, businesses and consumers don't know what's going to happen to taxes, government spending or regulation. Sharp tax increases and spending cuts are scheduled to kick in at year's end unless Congress and the White House reach a budget deal.
"In the meantime, it's 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."
"As weak as this recovery is, it's nothing like what the U.S. went through in the 1930s. The period known as the Great Depression actually included two severe recessions separated by a recovery that lasted from March 1933 until May 1937.
"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."
this needs to be quoted in a smaller format. the righties will pass right over it otherwise. they have a short comprehension span:
""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.
Hey Ricter, if it really is about the government simply spending more money to get the economy rolling, then why are we struggling so much when the government is spending more as a percentage of GDP than any time in the last century besides world war 2?
We should be thriving according to the likes of Krugman.
