WASHINGTON (AP) — 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 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:
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.
Others are spending less because they’re paying down debt or saving more. Household debt peaked at 126 percent of after-tax income in mid-2007 and has fallen to 107 percent, according to Haver Analytics. 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 over $1 trillion in December 2007.
“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.”