US Real GDP Growth Rate by Year Compared to Inflation and Unemployment
What Really Influenced U.S. Growth Through History
The U.S. GDP growth rate is the percentage change in the gross domestic product from one year to the next. The growth rate history is the best indicator of a nation's economic growth over time. It’s used to determine the effectiveness of economic policies. Voters use it to decide on the performance of a president or members of Congress.
Comparing Growth by Year
You should also compare growth by year to the unemployment rate by year and inflation by year. That tells you where you are in the business cycle. Negative growth signals the contraction phase. A recession and high unemployment follow. High growth must occur before unemployment recedes. That begins the expansion phase.
Faster Isn't Always Better
Faster growth isn't always better growth. It must be sustainable. Economists agree that the ideal GDP growth rate is between 2% and 3%. Growth needs to be at 3% to maintain a natural rate of unemployment. But you don't want growth to be too fast. That will create a bubble, which then leads to a recession when it bursts.
The Effect in History
The biggest drop in growth in U.S. history occurred in 1932. The economy contracted 14% during the worst year of the Great Depression. The worst deflation occurred that same year. Prices fell 10.3%. The highest jobless rate of 24.9% occurred in 1933.
All those records occurred during the contraction phase of the business cycle.
The worst inflation in modern times was right after World War II. Prices rose 18.1% in 1946. That happened during the expansion phase of the business cycle.
The chart below shows efforts to stimulate the economy or ward off inflation, whether by the Federal Reserve or by elected officials.