4 depressing charts show why many Americans are still haunted by the Great Recession
A recruiter talks with a job seeker at the Construction Careers Now! hiring event in Denver, Colorado U.S. August 2, 2017.  REUTERS/Rick Wilking
A recruiter talks with a job seeker at the Construction Careers Now! hiring event in Denver, Colorado U.S. August 2, 2017. REUTERS/Rick Wilking

(A recruiter talks with a job seeker at the Construction Careers Now! hiring event in DenverThomson Reuters)

  • Forecasts for America's economic growth potential have been slashed post-crisis.

  • US GDP remains 15% below the pre-Great Recession trend, according to a study.

  • This helps explain the lack of wage growth, and the sense of exclusion from the recovery.

Expectations are everything, especially in economics.

That’s why a distinct lack of progress in a few basic measures of economic progress, particularly relative to pre-crisis expectations, has left many Americans questioning how much they have personally benefitted from the economic recovery.

A new report from the Roosevelt Institute, a liberal think tank in Washington, highlights a number of ways in which "the recovery since 2009 is, in a sense, a statistical illusion."

The study finds the nation’s total economic output, its gross domestic product, "remains about 15% below the pre-recession trend, a larger gap than at the bottom of the recession." The first chart below shows that lag, while the second offers insights into just how badly the crisis dented expectations about the future.

ROOSEVELT1
ROOSEVELT1

(Roosevelt Institute)

Roosevelt2 Potential forecasts
Roosevelt2 Potential forecasts

(Roosevelt Institute)
Strong employment gains in recent months have brought the jobless rate down to a historically-low 4.3%. However, this decline has not been accompanied by rising incomes or consumer prices, generally associated with a sustainable economic boom. Some Federal Reserve policymakers have found this trend puzzling, while many labor economists point to underlying weaknesses in the job market, including high levels of underemployment and long-term joblessness, as drags on income.

Stagnant wages amid rising profits have meant that the wage share in US national income has fallen from 63% to 57% in the last 15 years, according to the report.

Roosevelt4 labor share
Roosevelt4 labor share

(Roosevelt Institute)

"It is impossible for the wage share to ever rise if the central bank will not allow a period of 'excessive' wage growth," writes J.W. Mason, who authored the report. "A rise in the wage share necessarily requires a period in which wages rise faster than would be consistent with longterm macroeconomic stability."

In other words, if Fed officials tighten monetary policy at the first sign of wage increases, they will never allow the imbalances that have built up, including deep income disparities, to be torn down. Average hourly earnings rose just 2.5% on a yearly basis in July, nothing to write home about and certainly not enough to begin the ground lost over the last decade and more.

Business investment, which is key to long-run economic growth, has also been dismal during the now eight-year expansion.