What Is an Economic Boom With Examples

What Is an Economic Boom?

Definition: An economic boom is the expansion and peak phase of the business cycle. It's also known as an upswing, upturn, and a growth period. Economic activity rises in the areas of national output, productivity, and income. Business sales increases, driving up profits. It's usually accompanied by a bull market in stocks, and a bear market in bonds. 

The National Bureau of Economic Research determines when a boom occurs. It uses economic indicators such as gross domestic product, employment and income. Since 1854, there have been 33 economic booms. They typically last 38.7 months each. For more, see NBER Cycles.

A rise in consumer demand causes a boom. That's because families are confident to buy now because the future is bright. They are buoyed by better jobs, rising home prices, and a good return on their investments. 

As a boom starts when economic output, as measured by GDP turns positive. Many other economic indicators may have already turned positive before that. 

Central banks can use monetary policy to keep a boom going for a long time. They aim for a  ideal growth rate of between 2 to 3 percent, and a core inflation rate of 2 percent or less. More than that, and the economy risks going into the peak phase of the business cycle. That causes inflation, bad investments, and too much debt. 

A boom ends when GDP turns negative. That's the contraction phase of the business cycle. It typically signals the start of a recession. 

1920s

Wall Street traders in 1925
Curb Market traders gesture with their hands to trade stocks, on Wall Street, New York City, in 1925. The Curb Market was for stocks not listed on the New York Stock Exchange. Photo: Hulton Archives/Getty Images

During the Roaring Twenties, the U.S. economy grew 42 percent. It produced nearly half of the world's total output. Average income rose from $6,460 to $8,016 per person. On average, the stock market increased in value by 20 percent a year. Unemployment stayed at around 4 percent. It consisted of three expansions. 

  1. July 1921 - May 1923 (22 months)
  2. July 1924 - October 1926 (27 months)
  3. November 1927 - August 1929 (21 months)

The boom was caused by the end of World War I. Returning veterans brought back new perspectives and skills. Women had become independent while they were gone. New inventions, like the auto assembly line, made consumer goods available at reasonable prices. An expanded banking industry made credit available. That spurred purchases of cars, washing machines, and stocks. By the end of the decade, it had shifted the United States from a traditional, farm-based economy to free market, consumer products based economy.

Post World War II

Shipbuilding during WW II.
Shipbuilding during WW II. Photo: By: Fox Photos / Getty Images

The boom after World War II lasted 37 months, from October 1945 to November 1948. During that time, Americans purchased 20 million refrigerators, 21.4 million cars, and 5.5 million stoves. (Source: "The Rise of American Consumerism," PBS.)

The 1944 GI Bill of Rights helped cause the boom. It gave loans to returning veterans for education and training. It provided federal loan guaranties so they could buy homes, farms and businesses. It created a fund to pay veterans if they were unemployed. The Employment Act of 1946 also assisted. For the first time, the federal government took permanent responsibility for providing jobs. As a result, 80 percent of the more than 20 million civilians and soldiers who returned from the war found jobs by mid 1947. (Source: "Economic Recovery: Lessons from the Post-World War II Period," George Mason University.)

In 1944, the Bretton Woods conference cemented America's position as a world leader. It established the U.S. dollar as the dominant global currency, replacing the gold standard. It also established the International Monetary Fund and the World Bank to spur global growth. 

The boom ended with the onset of the Cold War in 1947. That year, the House Un-American Committee raised the spectre of Communist subversion at home with its well-publicized hearings. The recession was mild and short-lived. (Source: "The 1948-1949 Recession," NBER. "The Cold War," History.com.)

1950s

black-friday-shoppers.jpg
Shoppers listening to the Mabley Christmas Carolers in the arcade of the Mabley & Carew Department Store, Cincinnati, Ohio, 1950s. Photo by Cincinnati Museum Center/Getty Images

During the 1950s, the economy grew 50 percent, from $2 to $3 trillion (adjusted for inflation). Income per person rose 25 percent, from $13,819 to $17,380 (not adjusted). For more, see U.S. GDP by Year.

It was supported by three expansion, interrupted by mild and brief contractions. They were:

  1. October 1949 -  July 1953  (45 months)
  2. May 1954 - August 1957 (39 months)
  3. April 1958 - April 1960 (24 months)

President Eisenhower signed the Federal Highway Act on October 22, 1956. It authorized the construction of the nation's interstate highway system. More than $1 billion was allocated to the first year of  "the greatest public works program in the history of the world." (Source: "Federal Highway Act of 1956: Creating the Interstate System," Federal Highway Administration.)

Televisions advertising rose from $41 million to $335 million between 1951 and 1953. By the end of the decade, 90 percent of American homes had a television. Like the Roaring Twenties, this boom grew on the backs of new consumer products. (Source: "What Caused the Advertising Industry Boom in the 1950s?" Small Business Chronicle.)

1990s

Bill Clinton
After drawing a downward line on a chart, President Clinton unveils his budget for the year 2013 February 7, 2000. The President is sending Congress a $1.84 trillion farewell budget with surpluses that he proposes using to wipe out the government public debt, provide modest tax cuts and greatly expand government health care. Photo: Mark Wilson/Getty Images

Mary 1991 - March 2001 120 months (Source: "U.S. Business Cycle Expansions and Contractions," National Bureau of Economic Research.)

The 1990s boom was a record 10 years of expansion. GDP was positive for an unprecedented 120 months.