US economic recovery is weakest since World War II

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."


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.

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 McDonald's, Target and Nordstrom's.

"Nothing, not even a rejection letter," he says.

His wife, a registered nurse, has lost two jobs in the interim _ and just received an offer to work reviewing medical records near Atlanta.

"We are broke and nearly homeless," he says. "If this job for my wife hadn't come through, we would be out on the street come Sept. 1 or would have had to move in with relatives."

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. 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.

AP Economics Writer

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11 thoughts on “US economic recovery is weakest since World War II

  1. The idea that World War II brought us out of the Great Depression is one of the greatest modern fallacies in our educational system. It sets up the straw dummy for the broken window fallacy that conservatives like to ridicule and is at its heart basically untrue. Both unemployment and and GDP were recovering rapidly before the war started. It is true that the run up to the war 1938-1941 grew faster than the period 1933-1936 (before we made the mistake of increasing taxes, increasing the interest rates to decrease the money supply, and decreasing public spending all at the same time. We fixed the last two and growth resumed.) , but there are a couple caveats to this. First, the bump was from about 10% to 13% growth per year. Significant, but not earth shattering. All told the increase from that bump was tiny compared with the loss of that 10% from 1942-1945. Second, the massive increase in public debt started in 1941, whereas the bump from 10% to 13% started in 1939. It is credible to attribute the bump to the war *buildup*, but the buildup had a very small total impact on debt compared with the war itself. Third, if you take the GDP growth and employment growth and extrapolate from the 1933-1936 numbers, even if you take out that 3% bump, the only impact is we reach full recovery a couple years later. Getting Hitler out of power may have been a benefit of WWII. Pulling us out of the Great Depression most emphatically was *not*.

    1. Sorry, I misspoke. The broken window fallacy is a valid description by itself, but the conservative application of this to Keynesian economics is contrived and misleading.

    2. Let's see "10% to 13% growth per year" (1938-1941) is a "bump" and "tiny compared with the loss of that 10% from 1942-1945."(?) They sound comparable to me.

      Wars are notoriously bad investments for having relatively little multiplier effect -- all that expenditure going overseas and not returning -- unless, of course, it truly prevents defeat and subjugation. What pulled us out was what happened after WWII: Truman's 92% tax on that part of income over $400k (in today's $$) and severe deficit spending, sometimes exceeding 100% of GDP, to invest in national infrastructure and create jobs, the very sort of investment with highest multiplier effect. Ike largely continued all that, and the rest was history.

  2. The recession/depression never ended, rather the figures were/are rigged to make it appear that it had. The tr we have actually had negative economic growth for years, but they have disguised inflation as growth to hide this. The unemployment rate is more like 17-19%,, and would be much worse if we actually ended our perennial wars and brought all the troops (and gigantic mercenary forces) home; this won't happen, of course, since 50% of our industrial production now comes from the manufcature of military goods.

    OF course, manufacturing in the US barely makes it to a double digit figure in the "service sector" house-fo-cards economy, which is based on "consumer spending". Our prize-winning economists seem to have forgotten some basic tenets of capitalism, like capital formation. Empty, stupid rhetoric about "more jobs" seems utterly disconnected from the creation of a vibrant manufacturing sector that as someone has mentioned, is based on the production of goods that are wanted and needed. Not more cell phone "apps" for God's sake, how about a Manhattan project for alternative energy?

    Our industrial base has literally been exported overseas, because multinational corporations don't care about the US, and our corrupt "leaders" have been willing to facilitate this for decades. Gone are the days when great American ideas were developed into great American products. Our industrial sector has been called the "Rust Belt" for decades. Now we are turning our students into life-long debt-slaves before they graduate from college, with enormous loans and no jobs to be had.

    To replace industry, we have gone through one bubble after another, with the housing bubble finally taking what was left of a shrinking middle class under water. Consumers can't print their own currency, as does the government, which now is buying most of the Treasury notes to finance the endless trillion dollar deficits. Insolvent, illiquid banks don't lend to main street anyway, so forget about borrowing more money in consumerland. You need to be in the upper 1% if you plan on endless spending sprees.

    While we exported industry, wages were frozen, and have remained so for decades, while the price structure has steadily and relentlessly continued to rise. Food and energy prices were the one thing we had that were universally subsidized, no longer. $4 a gallon for gas and milk, $200 for what used to be $75 for groceries, $40,000 for what used to be $4000 for college tuition, bankruptcy for catastrophic medical bills now common, this is the reality of the teachers and police and ordinary workers whose $35000-$50000 annual salaries have remained static, which now can purchase 20-30% of what they used to 20 years ago.

    Corruption rules. We have government of the corporation, by the corporation, for the corporation. All the talk of "recovery" is just that, talk. Better plant a victory garden somewhere it is raining, food prices will be going way up next year after all the crops have died and the cattle have been sold off and slaughtered.

  3. I thank the GOP for not only making the mess, but preventing this country from aggressively digging out of it. Their obstruction over the past two years has been nothing short of treason.

  4. If we split along red/blue lines, the water power, coasts, educational and high-tech resources go one way, likely teaming up with Canada to dominate the world, and leaving behind a merely commodity-rich, agricultural, somewhat-English-speaking, conservative-Protestant Brazil. I live in that southern, 2nd one and would not like the change.

    Deficit spending is a tried-and-true basic tool of Keynesian economics.[1] It's how FDR, Truman, and Ike got us out of the hole after WWII. The current GOP call for "austerity" is like Hoover in 1932. Then, the electorate had the good sense to vote him out. The problem now is how to get the vast, new amounts of $$ out of politics so deficit spending can be used in a nonpartisan way, for the good of us all, not just for whomever paid the campaign expenses of the current crop of politicians.[2]

    2. See "money loop" graph,

    I wish Obama spent more than he does[1] and not on oil subsidies and oil wars like the GOP[2], but on rebuilding infrastructure and basic health, science and technology, like Harry Truman did after WWII, taxing the rich to do it, creating a huge decades-long-lasting economic expansion for the US.

    1. "Private Sector Job Creation, December 2007 to Present"
    2. "The Truth About the President and the Deficit"

    "Don't tie the hands of the job-creators." is big $$[1] propaganda. No jobs are created when $$ sit idle, waiting for the next boom. FDR and Truman knew that creating growth requires busting up big, idle concentrations of $$ to put it to work, for us all,[2] and that's why the rich (& their toadies) hated them.[3]

    1. The top 1% owns roughly 40% of the US and averages incomes over $1M/yr.



    1. Relax. Both sides are wrong. We have failed at competing in international markets. Wages aren't cheap in Germany, yet their products sell worlwide. I'm presently living in Thailand and I can tell you honestly that German products sell here. We have lost our work ethic. We aren't proud of our work. We produces things no one wants (Where did I hear that phrase used before? Oh, yes, in Communist China and the USSR.) I'm nearly the only American living and working in my district here in Thailand, but their are people from German here. Some own bakeries, some own a farm like me. Some even teach English like me, but it isn't their native language. My knowledge of the Thai language is very good, but the few American that are here can't speak a word of it, nor do they work, or try to establish a business. We think the world owes us a living, rather then using our God given talents to find our own way around in this world. Work, smart work, it's good for the spirit, Accomplish something, rather then just complain. If you can't find your way in the States, then look for opportunities oversea. After all, that what your great, great granparents did.

      1. Alan Greenspan has proclaimed himself "shocked" that "the self-interest of lending institutions to protect shareholders' equity" proved to be an illusion... The Reagan-Thatcher model, which favored finance over domestic manufacturing, has collapsed. ... The mutually reinforcing rise of financialization and globalization broke the bond between American capitalism and America's interests. ...we should take a cue from Scandinavia's social capitalism, which is less manufacturing-centered than the German model. The Scandinavians have upgraded the skills and wages of their workers in the retail and service sectors -- the sectors that employ the majority of our own workforce. In consequence, fully employed impoverished workers, of which there are millions in the United States, do not exist in Scandinavia. - Harold Meyerson, "Building a Better Capitalism", The Washington Post, March 12, 2009.

  5. What do you expect when you elect figure heads instead of leaders to run your country.
    Personally I think it is time to split the U.S. It has gotten too big for 1 central government and the corruption is no longer within reach of control.

    1. Blue States Secession

      Dear Red States:

      You talk about "states rights" and secession so we're trying it. We intend to form our own country, and we're taking the other Blue States with us. In case you're unaware, that includes Hawaii, Oregon, Washington, Minnesota, Wisconsin, Michigan, Illinois and almost all the Northeast. We believe this split will be beneficial to the nation, and especially to the people of the new country of New California. If Canada joins us, we'll be the world's greatest power ever, and you might become an English-speaking, protestant Brazil, if you're lucky.

      To sum up briefly: You get Texas, Oklahoma, and all the slave states.

      We get stem cell research and the best beaches.

      We get the Statue of Liberty. You get Dollywood.

      We get Intel and Microsoft. You get WorldCom.

      We get Harvard. You get Ole' Miss.

      We get 85 percent of America's venture capital and entrepreneurs. You get Alabama.

      We get two-thirds of the tax revenue; you get to make the red states pay their fair share.

      Since our aggregate divorce rate is 22% lower than the Christian Coalition's, we get a bunch of happy families. You get a bunch of single moms.

      Please be aware that Nuevo California will be pro-choice and anti-war (but we have the technological know-how to incinerate you, just in case you try something again), and we're going to want all our citizens back from Iraq at once. If you need people to fight, ask your evangelicals. They have kids they're apparently willing to send to their deaths for no purpose, and they don't care if you don't show pictures of their children's caskets coming home. We do wish you success in Iraq, and hope that the WMDs turn up, but we're not willing to spend our resources in Bush's Quagmire.

      With the Blue States in hand, we will have firm control of 80 percent of the country's fresh water, more than 90 percent of the pineapple and lettuce, 92 percent of the nation's fresh fruit, 95 percent of America's quality wines (you can serve French wines at state dinners), 90 percent of all cheese, 90 percent of the high tech industry, most of the U.S. low-sulfur coal, all living redwoods, sequoias and condors, all the Ivy and Seven Sister schools, plus Harvard, Yale, Stanford, Cal Tech and MIT.

      With the Red States, on the other hand, you will have to cope with 88 percent of all obese Americans (and their projected health care costs), 92 percent of all U.S. mosquitoes, nearly 100 percent of the tornadoes, 90 percent of the hurricanes, 99 percent of all Southern Baptists, virtually 100 percent of all televangelists, Rush Limbaugh, Bob Jones University, Clemson and the University of Georgia.

      We get Hollywood and Yosemite, thank you. And Olympic National Park and Crater Lake.

      Additionally, 38% of those in the Red states believe Jonah was actually swallowed by a whale, 62% believe life is sacred unless we're discussing the death penalty or gun laws, 53% believe that Saddam was involved in 9/11 and 61% of you crazy so-and-sos believe you are people with higher morals then we lefties. You continue to have the vast majority of murders and executions. Chicken and egg?

      By the way, we're taking the good pot, too. You can have that dirt weed they grow in Mexico.

      Peace out,

      Blue States

      1. In 1800, a few years after the laws for the country were written, the U.S. had a population of around 5,000,000, and was still comprised of the original 13 states with some small territory expansion into the west. Today, the U.S. is comprised of 50 states with around 340,000,000 people. Yet the original laws and basis for governing has not changed. Can a few hundred people really govern the lives of hundreds of millions?

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