Expect a Slow March out of Recession

Now that the recession is over (phew, that’s a relief), how quickly can we expect the U.S. economy to rebound? Historically, the steeper the fall, the sharper the recovery.

Unfortunately, this beast of a recession is no ordinary rabbit. Through August, the recession will have lasted 20 months, compared with 16 months for the previous longest recessions in 1973-75 and 1981-82.

The Mortgage Bankers Association predicts in a new report (registration required) that the path to salvation will be a long slog. “The consensus view, and our view, is that the recovery now in progress (or about to get underway) will fall well short of a typical postwar recovery, at least for the first year or so,” the group says.

Here’s why. The economy continues to bleed jobs, restricting consumer spending. Bank lending, although flowing again, remains fitful, with more pain to come as commercial properties lose value. State and municipal governments are themselves cutting spending, while raising taxes to make up for large revenue shortfalls. Tighter underwriting standards for residential real estate mortgages are damping the housing market. Many homeowners also are underwater on their loans, falling behind on payments or increasingly at risk of foreclosure.

In the first year after a typical recession, the MBA notes, GDP rises by roughly six percent and consumer spending grows five percent. The big problem this time around is that the decline in wage income, aggravated by high unemployment, is the sharpest since WWII. That means consumer spending, the lifeblood of the U.S. economy, is likely to be sluggish for months to come. Don’t shoot the messenger.