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Will a Sluggish Recovery Cripple Economic Growth?

Though the Great Recession officially ended three years ago, weakened aggregate income is keeping Americans from climbing out of the income slump that resulted.


So said ""Fannie Mae's"":http://www.fanniemae.com/portal/index.html Economic & Strategic Research group in its latest edition of Housing Insights. In the report, the research group turned its eye to average and aggregate earnings in the last five business cycles - defined as a recession and the first three years of recovery - to examine the impact of weakened income growth in the current economic recovery.

While real average earnings (per person) trended downward or stayed flat during the previous four business cycles, the group found that average earnings actually increased from pre-recession levels during the Great Recession.

""Given the massive job losses during the Great Recession followed by a slow and choppy improvement in the current recovery, significant slack in the labor market would be expected to


suppress wage gains more so than in previous business cycles,"" the report reads.

""Surprisingly, this analysis finds that real average earnings started to grow even during the Great Recession, surpassing the level at the onset of the recession and remaining above that level after three years of recovery,"" it adds.

On the other hand, real aggregate earnings (across all employees) tell a different story. Aggregate earnings fell sharply during the Great Recession and have yet to fully recover. In fact, with the exception of the 2000 recession, the researchers said this cycle's aggregate earnings performance is the worst of the last five business cycles.

In inflation-adjusted dollars, the loss in aggregate earnings due to job cuts (called ""the employment effect"") in the Great Recession was at least double of any of the previous four downturns. According to the report, a breakdown of aggregate wage growth reveals that aggregate weekly earnings fell by an estimated $3.57 billion (adjusted for inflation as of June 2012) per week during the recession.

The construction industry experienced a huge impact from the recession, with aggregate weekly earnings falling more than $1 billion during the recession and employment staying down during the recovery. Fannie Mae's research team said the resulting downward pressure on aggregate earnings will hinder future economic expansion.

""Given that earnings are a primary force behind economic growth and we believe that it will take years before housing activity rebounds to levels typically associated with robust construction employment gains, we believe it is likely that we will experience a gradual, sub-par economic expansion,"" the group wrote.


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