The history of recessions in the United States shows that they are a natural, though painful, part of the business cycle. The National Bureau of Economic Research determines when a recession starts and ends.
The Bureau of Economic Analysis measures the gross domestic product (GDP) that defines recessions. The Bureau of Labor Statistics reports on the unemployment rate. Unemployment often peaks after a recession ends, because it is a lagging economic indicator. Most employers wait until they are sure the economy is back on its feet again before hiring permanent employees.
There have been 19 noteworthy recessions throughout U.S. history.
21st Century Recessions
In its first decade, the 21st century experienced three recessions. Each was worse than the one before it, but for different reasons.
The 2020 recession was the worst since the Great Depression. The U.S. economy contracted a record 31.4% in the second quarter after falling 5% in the previous quarter.
The Covid-19 pandemic forced businesses to close, and families to shelter-in-place.
In April 2020, the U.S. economy lost an astonishing 20.8 million jobs, sending the unemployment rate skyrocketing to 14.7%. It remained in the double digits until August. Uncertainty over the pandemic’s impact also caused the 2020 stock market crash.
The Federal Reserve lowered the fed funds rate to 0%, promising to keep it there until 2023. Congress issued $3.8 trillion in aid. Although the economy grew 33.1% in the third quarter, it was not enough to make up for earlier losses.
The Great Recession lasted from December 2007 to June 2009, the longest contraction since the Great Depression. The subprime mortgage crisis triggered a global bank credit crisis in 2007. By 2008, the damage had spread to the general economy through the widespread use of derivatives.
GDP in 2008 shrank in three quarters, including an 8.4% drop in Q4. The unemployment rate rose to 10% in October 2009, lagging behind the recession that caused it. The recession ended in Q3 2009, when GDP turned positive, thanks to an economic stimulus package.
The recession ended in Q3 2009, when GDP turned positive, thanks to the American Recovery and Reinvestment Act.
The 2001 recession lasted eight months, from March to November. It was caused by a boom and subsequent bust in dot-com businesses. The Y2K scare had partially created the boom in 2000. Companies bought billions of dollars worth of new software, because they were afraid the old systems weren't designed to transition from the 1900s to the 2000s. Many dot-com businesses were significantly overvalued and failed.
The 9/11 attack worsened the recession. The economy contracted in two quarters: Q1 by -1.1% and Q3 by -1.7%. Unemployment continued rising until it peaked at 6.3% in June 2003.
20th Century Recessions
There were 12 recessions in the 20th century. The Great Depression was technically two of the nation's worst recessions back-to-back.
This recession ran for nine months, from July 1990 to March 1991. It was caused by the 1989 savings and loan crisis, higher interest rates, and Iraq's invasion of Kuwait. GDP was -3.6% in Q4 1990 and -1.9% in Q1 1991. Unemployment peaked at 7.8% in June 1992.
The economy suffered a double whammy of two recessions in this period. There was one during the first six months of 1980. The second lasted 16 months, from July 1981 to November 1982. The Fed caused this recession by raising interest rates to combat inflation. That reduced business spending. The Iranian oil embargo aggravated economic conditions by reducing U.S. oil supplies, which drove prices up.
GDP was negative for six of the 12 quarters. The worst was Q2 1980 at -8.0%. Unemployment rose to 10.8% in November and December 1982. It was above 10% for 10 months.
This recession lasted 16 months, from November 1973 to March 1975. The OPEC oil embargo is blamed for quadrupling oil prices, but actions taken by President Richard Nixon also contributed to the recession.
First, Nixon instituted wage-price controls. They kept prices too high, reducing demand. Wage controls made salaries too high and forced businesses to lay off workers. Second, Nixon took the United States off the gold standard in response to a run on the gold held at Fort Knox, which led to inflation. The price of gold skyrocketed while the dollar's value plummeted.
The result was stagflation and five quarters of negative GDP growth: 1973 Q3, -2.1%; 1974 Q1, -3.4%; Q3, -3.7%; Q4, -1.5%; and 1975 Q1, -4.8%. Unemployment reached a peak of 9.0% in May 1975, two months after the recession ended.
This recession was relatively mild, lasting 11 months—from December 1969 to November 1970, Unemployment peaked at 6.1% in December 1970. The economy contracted by 1.9% in Q4 1969 and by 0.6% in Q1 1970. GDP rose by 0.6% in Q2 1970 and 3.7% in Q3 but fell by 4.2% in Q4. The economy recovered in Q1 1971, increasing by 11.3%.
Starting in April 1960, this recession lasted 10 months until February 1961. GDP was -2.1% in Q2 1960, rose by 2.0% in Q3, but was down by 5.0% in Q4. Unemployment reached a peak of 7.1% in May 1961.
President John F. Kennedy ended the recession with stimulus spending. His opponent, Richard Nixon, blamed the recession for costing him the election.
In this recession, which took place from August 1957 to April 1958, GDP fell 4.1% in Q4 1957, then contracted to a low of 10.0% in Q1 1958. Unemployment didn't reach its peak of 7.5% until July 1958. The Fed's contractionary monetary policy caused this economic slowdown.
This recession lasted 10 months, from July 1953 to May 1954. It resulted from tightened monetary policy following the Korean War. Unemployment didn't reach its peak of 6.1% until September 1954, four months after the recession ended. In 1953, GDP contracted by 2.2% in the third quarter and by 5.9% in Q4. In 1954, it contracted by 1.9% in the first quarter.
This 11-month recession began in November 1948 and lasted until October 1949, when unemployment peaked at 7.9%. It was caused by the Fed raising interest rates too quickly.
This recession lasted eight months, from February to October. It was a natural result of the demobilization from World War II.
1929–38 (The Great Depression)
The biggest economic crisis in U.S. history was two closely related recessions. The first downturn was from August 1929 to March 1933, with a record 12.9% contraction in 1932. The second downturn lasted from May 1937 to June 1938. Unemployment reached 24.7% in 1933 and remained in the double digits until WWII began.
Several factors combined to create the Great Depression. The Fed raised interest rates in the spring of 1928 and continued despite the recession. The 1929 stock market crash destroyed businesses and life savings. A 10-year drought in the Midwest created the Dust Bowl that devastated farmers.
The New Deal ended the first recession, boosting growth by 10.8%. The second recession ended when the drought did, and the government increased spending for World War II.
The "Panic of 1907" lasted from May 1907 to June 1908. It was caused by speculators' losses that spread to trust companies. These firms acted like banks but had lower reserves. Congress created the Federal Reserve System to prevent future collapses.
Earlier Major Recessions
The hallmark of these four early recessions is that the federal government could do little to stop them. Their harshness and unpredictability led to the support for a national central bank.
- 1893: The Reading Railroad failed, leading to other railway failures and a stock market crash. Banks suspended cash payments, leading to the hoarding of cash and bank failures.
- 1873: The construction of the national railway system created speculation that led to the collapse of the largest U.S. bank. The recession lasted until 1879.
- 1857: Embezzlement at the Ohio Life Insurance and Trust Company's New York branch triggered a panic. When a ship carrying gold en route to New York sank, investors lost faith in paper money. Businesses couldn't make their payrolls, and commerce ground to a halt.
- 1797: The Panic of 1797 resulted from land speculation. The First Bank of the United States and U.S. Treasury Secretary Alexander Hamilton expanded the money supply, leading to the boom and bust.
How the BEA Tracks Recessions
The Bureau of Economic Analysis (BEA) revises its GDP estimates as it receives new data, a process that usually takes place in July. Using the 2008 recession as an example, here are the final estimates compared to the initial projections made one month after the quarter ended.
These numbers demonstrate how difficult it is to correct a recession until it's already started.
- Q1: The economy shrank by 2.3%. Initially, the BEA thought it had increased by 0.6%.
- Q2: The economy rebounded to 2.1% growth. The initial release said it had grown by 1.9%. Many people thought the Fed's rescue of Bear Stearns had ended the threat to financial markets.
- Q3: The economy shrank by 2.1%, more than the -0.3% initial estimate.
- Q4: The economy collapsed, contracting by 8.4%. The BEA initially said that it had shrunk by only 3.8%.
- Q1: The economy contracted by 4.4%. The initial estimate said that it had shrunk by 6.1%.
- Q2: The economy contracted by 0.6%, less than the initial estimate of 1.0%.
- Q3: The economy grew by 1.5%, which was less than the initial projection of 3.5% growth.
- Q4: The positive trend continued, with the economy growing by 4.5%. However, the initial estimate reported growth of 5.7%.