For Americans, Recovery Feels like Recession

Monday, 10 Oct 2011 03:49 PM

 

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WASHINGTON - No wonder many Americans feel as if the economy never recovered at all.

The incomes of U.S. workers, adjusted for inflation, fell even more rapidly since the rebound began in the summer of 2009 than during the recession itself, according to a new study.

The findings from research conducted by two former Census Bureau economists offer insight into the sluggish nature of the recovery. The U.S. economy relies on consumer spending to fuel around two-thirds of total output.

The study, conducted by Gordon Green and John Coder and published by Sentier Research, found median annual incomes adjusted for inflation dropped 6.7 percent between June 2009 and June 2011, more than double the 3.2 percent drop experienced during the recession.

This knocked real median annual household income down to $49,909 in June 2011 from $55,309 in December 2007, when the recession began. Essentially, American households continued to lose ground even though growth had resumed.

Economic growth in the first half of 2011 has been particularly disappointing, advancing at less than a 1 percent annual rate. In the second quarter, consumer spending rose at only a 0.7 percent pace, the weakest since the fourth quarter of 2009.

President Barack Obama, whose reelection prospects could hinge on a stronger labor market recovery, has proposed a $447 billion stimulus program aimed at cutting unemployment. The U.S. jobless rate, which peaked at 10.1 percent in October 2009, has been stuck above 9 percent for the past five months.

The research indicates the risk of deflation, which the Federal Reserve has fought off with aggressive monetary policy, has been even more pronounced than previously thought.

While falling prices sound like a good thing, a downward spiral in costs and salaries can lead to a prolonged period of contraction, say economists.

Fed Chairman Ben Bernanke recently signaled the central bank might be forced to act if inflation or inflation expectations fell substantially.

© 2014 Thomson/Reuters. All rights reserved.

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