Wednesday, April 11, 2007

The Bafflingly Weak Recovery, Part 2

In the previous post I discussed how the extremely loose monetary policy of the first half of this decade makes the relative weakness of this economic expansion all the more baffling. I thought that to round out that argument I should update and expand on some of the data that demonstrates exactly how weak this expansion has been.

By virtually any measure of the amount of money flowing into the pockets of Americans, this recovery has done poorly. In the following series of graphs I compare this expansion with other economic expansions of the past 35 years. As we'll see, by almost every measure the US economy has failed to live up to the standards set by previous economic expansions.

Let's start with GDP growth. Those who tout the "strong" economic growth of the past few years neglect to put such figures in context. As the following picture shows, GDP growth has not been particularly good in recent years.

Note: In each case I counted the start of the expansion as the first post-recession quarter where GDP growth exceeded 2% over a 6-month period, and I count the end of the expansion as the quarter in which GDP growth turns negative.

Even by the economy-boosters' favorite measure, this economic expansion looks pretty weak. But what has soured the opinion of average Americans much more than this is the poor growth in their incomes during this recovery. No matter how you measure income, it looks pretty bad.

Growth in wages and salaries? Looks pretty weak:

Note: All income measures adjusted for inflation using the PCE deflator.

Okay, well maybe workers have simply been compensated more through benefits than through wages and salaries. So let's take a look at total compensation. Nope, still looks pretty bad:

Well, what about if we take into account the nice tax cuts people have received during the Bush years in office. That must have helped, right?

Nope. Growth in per capita disposable income also looks bad:

Given these measures of how well the US economy has been doing overall, it's not surprising that most Americans feel a bit let down by this economic expansion. It doesn't take a media conspiracy to make people grumpy about the economy; they just need to look at their own bank accounts.

POSTSCRIPT: It is worth remembering that there is actually one type of income that has grown very strongly during this economic expansion: income to the owners of US corporations, otherwise known as after-tax corporate profits. Why profits have grown so extraordinarily while overall income has done so poorly during this expansion is another profound question that still awaits a conclusive answer.

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