TWO years ago, US officials said, the worst recession since the Great Depression ended. The stumbling recovery has also proven to be the worst since that economic disaster of the 1930s.
Across a wide range of measures - employment growth, unemployment levels, bank lending, economic output, income growth, home prices and household expectations for financial well being - the economy's improvement since the recession's end in June 2009 has been the worst, or one of the worst, since the government started tracking these trends after World War II.
In some ways the ongoing recovery is much like the 1991 and 2001 post-recession periods - all three are marked by gradual output-growth rather than sharp snap-backs typical of earlier recoveries. But this recovery may remain lacklustre for years, many economists say, because of heavy household debt, a financial system still damaged by the mortgage crisis, fragile confidence and a government with few good options for supporting growth.
Still, broader problems are holding the economy back.
Banks are less able or willing to lend than before the recession. Since the recovery started, banks have reduced money they make available through credit card lines from $US3.04 trillion ($2.89 trillion) to $US2.69 trillion and have reduced home equity credit lines from $US1.33 trillion to $US1.15 trillion, according to the Federal Reserve Bank of New York.
Policy-makers, meanwhile, are reluctant to do more to stimulate economic growth.
The Federal Reserve has already pushed short-term interest rates to near zero. Two rounds of quantitative easing that including purchasing $US1.425 trillion in mortgage bonds and $US900 billion in Treasury debt helped to stabilise the economy but failed to spur a vigorous recovery.
Likewise, fiscal stimulus measures, either in the form of tax cuts favoured by Republicans or spending increases being pushed by Democrats, look unlikely given large federal deficits and the disappointing results of earlier efforts, including President Barack Obama's $US830bn stimulus program of 2009.
The biggest problem may be household indebtedness. At the peak of the economic boom in the third quarter of 2007, US households collectively had borrowed the equivalent of 127 per cent of their annual incomes to fund purchases of homes, cars and other goods, up from an average of 84 per cent in the 1990s. The money used to pay off that debt means less is now available for new spending. Households had worked their debt-to-income levels down to 112 per cent by the first quarter, in part because banks have written off some debt as uncollectible.
Jurgen Schulz, owner of K-5, a San Diego area retailer that sells surfboards, skateboards and lifestyle apparel, sees more people living month-to-month. "Our sales trail way off the further it gets from pay period," he said; this year, Mr Schulz didn't hire the six to eight seasonal workers his company usually brings on each northern summer.
Getting rid of debt could be a long and slow process.
To get back to a 1990s debt-to-income ratio of 84 per cent, households would either need to pay down another $US3.3 trillion of debt, or see their incomes rise $US3.9 trillion. That's equivalent to about nine years worth of income growth in normal times, estimates Credit Suisse economist Dana Saporta.
Debt constraints are especially hard on consumers who before the crisis relied on credit cards or home equity lines to keep spending when they needed money. Now many of those lines have been limited or cut.
With less access to credit, many families are finding the only way to make ends meet is to cut spending.
"Every single month you're struggling, struggling, struggling," said Javier Toro, 49, a father of three. He makes $US13 an hour as a customer service representative at a non-profit group that administers a program offering free energy efficiency upgrades to home-owners. The program, funded by the 2009 stimulus law, ends in a few months as government funds dry up. He's paying about $US100 a month to keep current on $US3000 in credit card debt, but making no headway paying down principal. To make ends meet, he's cut his cable and internet services as well as the fixed telephone line to his rented home.
He said, "You don't see when this is going to stop."
Debt and a dismal job market have hurt consumers' confidence, which further damps their willingness to spend. The University of Michigan finds that 24 per cent of households expect to be better off financially within one year - that's the lowest this measure has been at this point in a recovery since World War II.
WSJ
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