The Unsustainable Recovery
March 12, 2012
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The news is filled with reports of positive economic trends–supposedly we are making slow but steady progress in recovering from the Great Recession. The Great Recession ended in June 2009, which means we have been in economic expansion for almost 3 years. So, how seriously should we take these reports?
One indicator worth looking at is median household income. Unfortunately its trend suggests little reason for cheer. In January 2012, median household income was $50,020. That was 5.4% lower than it was in June 2009. Even worse, as the chart below reveals, after a brief uptick it headed back down again.
It is true that employment is finally growing, a development reflected in the decline in the unemployment rate (see above). Unfortunately, this has done little to boost wages. In fact, real wages actually fell in 2011. The first chart below highlights the downward turn. The second chart reveals just how far per capita earnings remain below historical trend.
This situation helps to explain why growth has been so anemic. As the Wall Street Journal wrote:
Many economists in the past few weeks have again reduced their estimates of growth. The economy by many estimates is on track to grow at an annual rate of less than 2% in the first three months of 2012. The economy expanded just 1.7% last year. And since the final months of 2009, when unemployment peaked, the economy has expanded at a pretty paltry 2.5% annual rate.
Without a dramatic change in median household income, growth will remain slow and even the limited employment gains we currently celebrate will likely prove impossible to sustain. Given the current political climate, it is hard to see how this expansion will be either long lasting or bring meaningful improvements in majority living and working conditions.