|by Paul Davidson, USA TODAY|
The economy is growing but at a listless 2% annual pace.
Employers are adding jobs, but many are part time and low-paying.
Mortgages are easier to get, but not for first-time home buyers.
Five years after
A week ago, the
But the vestiges of the financial crisis and recession continue to restrain growth, leaving lenders more tight-fisted, businesses more hesitant to hire and invest, and consumers less inclined to splurge.
"It took us a lot longer to get into the financial crisis than anybody understands," says
In the years leading up to the crisis, housing was at the center of a bubble built on easy money — for homes, cars, college, just about anything. When the upward spiral of home prices peaked and credit markets ceased funding cheap mortgages, many homeowners couldn't refinance the loans when their borrowing costs rose. As they defaulted, banks that owned mortgage-backed securities wobbled or collapsed. Credit — which greases the wheels of the economy — skidded to a halt.
The effects cascaded through the economy. Stocks plunged. Consumer demand dried up. About 8.8 million Americans lost their jobs. Economic output equivalent to
"With no credit, no growth — or slow growth," says
Severe recessions typically are followed by dramatic recoveries — but not when they're sparked by a credit meltdown. Since the Great Recession ended in 2009, the economy has expanded by 9.2%, after adjusting for inflation.
The credit crunch has especially crimped consumer spending, which makes up two-thirds of the economy and has risen at a tepid 2.2% annual rate during the recovery.
She and her husband, Pat, who is semi-retired, are again dining out two to three times a week and taking weekend trips. But they're putting off lavish vacations and buying a flat-screen TV. "If I had good credit, I could just charge it," Jackson, 60, says.
The jobs recovery also has been subdued. The nation has recouped about 6.8 million of the 8.8 million jobs lost in the recession, adding a moderate 175,000 to 180,000 a month since 2011. The unemployment rate has fallen to 7.3% from its peak of 10% in
Meanwhile, the portion of Americans working or looking for jobs fell to a 35-year low of 63.2% last month as many older workers retire and discouraged ones drop out of the labor force. About 38% of the 11.3 million unemployed have been out of work six months or longer. Many will likely never work again.
Equally concerning is that many of the jobs added in the upswing are part time and in low-wage industries, such as restaurants, retail and home health care. That's largely due to a nearly 30-year-old trend in which computers and machines have replaced middle-class jobs in manufacturing, maintenance and office support, economists say. "What the recession has done is magnify" the trend because the downturn was so severe, says economist
"You're not destitute, but am I happy about things?" Koch says. "It's not the lifestyle I'd like."
Overall, inflation-adjusted wages have been stagnant in the recovery. Yet because of tight credit, consumers have been more dependent on wage gains to fund their spending than at any time since the 1960s, says
The good news is that over the past 18 months, consumers, businesses and large banks all have worked off much of the debt built up during the mid-2000s bubble. The portion of after-tax income that households devote to all kinds of debt fell to near a 30-year low of 10.5% in the first quarter after peaking at 14% in 2007, according to the Fed.
Spurred by consumers' healthier balance sheets and steady job growth, lenders have slowly opened the credit spigots. Auto loans with zero interest rates are popping up again, and even car loans for subprime borrowers are back. Last month, vehicle sales hit a post-recession high of 16.1 million at an annual rate as Americans no longer can put off replacing aging vehicles. Yet, while auto and student loans are ballooning, credit card debt in July was 17% below its
Housing is also recovering, due in part to thawing credit markets. Banks are providing far more jumbo mortgages — of more than
But the shadow of the housing crash and financial crisis lingers. First-time home buyers still struggle to obtain mortgages because of low credit scores or insufficient down payments. They made up about 29% of mortgages in July, vs. nearly 50% before the recession, limiting homeownership for young Americans.
Meanwhile, community banks have waded back into commercial real estate lending.
Still, Bridgeman says, the bank is almost exclusively providing loans backed by the
"There's been less talk the last few months that we could have a second recession," Grant says.
Several unlikely events could set off another steep downturn. The most imminent is another showdown in
Although the European financial crisis has eased since last year, a renewed sovereign debt debacle in nations such as Spain and
Yet another minefield is a sharp and unexpected increase in interest rates as the Fed dials back its
Still, economists say the risk of another downturn, especially one as severe as the Great Recession, are quite low in the near term. There's simply too much slack in the economy — unused factory gear, unemployed workers and unsold houses — to create the kind of bubbles that lead to messy busts, Porcelli says.
Adds Zandi, "We've taken our medicine, and we're much healthier. But we can still get sick."
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