Putting the Recovery in Context: Overview of Economic Progress
Any assessment of the current state of the economy must keep in mind the severity of the financial crisis and the Great Recession, the significant obstacles this recovery has faced and how underlying structural trends can impact economic growth. Collectively, these factors make comparisons with recoveries from much less severe postwar recessions deeply misleading.
This section reviews the state of the economy when President Obama took office and the significant progress that has been made since then. It describes why comparing the current recovery to “average” recoveries is inappropriate, and shows that, in fact, the U.S. recovery has fared well when measured against the recoveries in other advanced economies that suffered from the same devastating global financial crisis.
A Severe Recession
When President Obama took over from President Bush, the world had just experienced “[…] the worst financial crisis in global history, including the Great Depression,” according to former Federal Reserve (Fed) Chairman Ben Bernanke. Former Fed Chairman, Alan Greenspan, called it “the most debilitating financial crisis ever.” According to the Financial Crisis Inquiry Commission, the crisis was the “avoidable” result of a number of factors, including lax financial regulation and excessive risk taking on Wall Street. As the crisis spread from Wall Street to Main Street, millions of people lost their jobs, their homes or both.
During the last five quarters of the Bush presidency, real GDP fell 4.1 percent. This included a drop of 8.2 percent at an annual rate in the fourth quarter of 2008, the single worst quarterly economic performance in more than 50 years. The economy shed more than 4.5 million private-sector jobs during President Bush’s last year in office, including more than 800,000 in January 2009 alone. The unemployment rate jumped nearly 3 percentage points from January 2008 to January 2009, and it was on its way to peaking at 10.0 percent just eight months later.
The country’s manufacturing base was rapidly eroding. The automotive industry was on the brink of collapse. From December 2007 to June 2009, auto industry employment plunged by more than 600,000 jobs—more than one-fifth of total employment in the industry. Auto sales in 2009 ended at a 27-year low. The crisis threatened parts suppliers and retail outlets across the country.
The housing sector was in shambles. Home values nationally were in the process of plummeting about 20 percent between 2007 and 2011, according to the Federal Housing Finance Agency’s purchase-only index. In the states hit hardest by the housing crash, prices fell by more than twice as much. At the worst of the downturn, nearly one-third of all homeowners were underwater on their mortgages, meaning that they owed more on their home loans than their home was worth. All told, more than 9 million families would ultimately lose their homes due to foreclosure or distressed sale during the period from 2006 through 2014.
Driven by steep losses in home values and the stock market, nearly $13 trillion in household wealth evaporated during the last seven quarters of the Bush presidency, severely impacting consumer spending and GDP growth. According to the CEA, this constituted an initial shock to household wealth that exceeded the one that precipitated the Great Depression of the 1930s. The economy was teetering on the brink of total meltdown, and fears of another depression were very much real.
Read more of the Democratic response to the Economic Report of the President
