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Did you know that there have been several recessions in the U.S. since the
"Great Depression"? It's surprising to be sure, especially when you see these
events covered in the media as one-time horrors.
Let's take a look at some of these recessions, how long they lasted, how they
affected gross domestic product (GDP) and unemployment, and what is known about
what caused them. (For more on this read, What Caused The Great Depression? and
The Crash of 1929 - Could It Happen Again?)
What's a Recession?
A recession historically has been defined as two consecutive quarters of
decline in GDP, the combined value of all the goods and services produced in
the U.S. It differs from the gross national product (GNP) in that it does not
include the value of goods and services produced by U.S. companies abroad or
goods and services received in the U.S. as imports. (For more on this see, The
Importance of Inflation and GDP.)
A more modern definition of a recession that's used by the National Bureau of
Economic Research (NBER) Dating Committee, the group entrusted to call the
start and end dates of a recession, is "a significant decline in economic
activity spread across the economy, lasting more than a few months."
In 2007, an economist at the Federal Reserve Board (FRB), Jeremy J. Nalewaik,
suggested that a combination of GDP and gross domestic income (GDI) may be more
accurate in predicting and defining a recession.
The Roosevelt Recession: (May 1937 - June 1938)
Duration: 13 months
Magnitude:
GDP Decline: 3.4
Unemployment Rate: 19.1% (more than four million unemployed)
Reasons and Causes: The stock market crashed in late 1937. Business blamed the
"New Deal", a series of government-financed infrastructure work projects
through the Works Projects Administration (WPA) and Civilian Conservation Corps
(CCC). These camps provided work and room and board for more than 250,000 men.
Government blamed a "capital strike" (lack of investment) on the part of
business while "New Dealers" blamed cuts in WPA funding. The first Social
Security Insurance deductions pulled $2 billion out of circulation at this
time.
The Union Recession: (February 1945 - October 1945)
Duration: 9 months
Magnitude
GDP Decline: 11
Unemployment Rate: 1.9%
Reasons and Causes: The tail-end of World War II, the beginning of
demobilization of military forces and the slow transition to civilian
production marked this period. War production had virtually ceased and veterans
were just beginning to re-enter the workforce. It was also known as the "Union
Recession" as unions were beginning to reassert themselves. Minimum wages were
on the rise and credit was tight.
The Post-War Recession: (November 1948 - October 1949)
Duration: 11 months
Magnitude
GDP Decline: 1.1
Unemployment Rate: 5.9%
Reasons and Causes: As returning veterans returned to the workforce in large
numbers to compete for jobs with existing civilian workers who had entered the
workforce during the war, unemployment began to rise. The government's response
was minimal as it was much more worried about inflation than unemployment at
that time.
The Post-Korean War Recession: (July 1953 - May 1954)
Duration: 10 months
Magnitude:
GDP decline: 2.2
Unemployment Rate: 2.9% (lowest rate since WWII)
Reasons and causes: After an inflationary period that followed the Korean War,
more dollars were directed at national security. The Federal Reserve tightened
monetary policy to curb inflation in 1952. The dramatic change in interest
rates caused increased pessimism about the economy and decreased aggregate
demand.
The Eisenhower Recession: (August 1957 - April 1958)
Duration: 8 months
Magnitude:
GDP Decline: 3.3%
Unemployment Rate: 6.2%
Reasons and Causes: The government tightened monetary policy to years prior to
the recession to curb inflation, but prices continued to rise in the U.S.
through 1959. The sharp world-wide recession and the strong U.S. dollar
contributed to a foreign trade deficit. (For another view on trade deficits
read, In Praise of Trade Deficits.)
The "Rolling Adjustment" Recession: (April 1960 - February 1961)
Duration: 10 months
Magnitude:
GDP Decline: 2.4
Unemployment Rate: 6.9%
Reasons and Causes: This recession was also known as the "rolling adjustment"
for many major U.S. industries, including the automotive industry. Americans
shifted to buying compact and often foreign-made cars and industry drew down
inventories. Gross national product (GNP) and product demand declined.
The Nixon Recession: (December 1969 - November 1970)
Duration: 11 months
Magnitude:
GDP Decline: 0.8
Unemployment Rate: 5.5%
Reasons and Causes: Increasing inflation caused the government to employ a very
restrictive monetary policy. The structure of government expenditures added to
the contraction in economic activity.
The Oil Crisis Recession: (November 1973 - March 1975)
Duration: 16 months
Magnitude:
GDP Decline: 3.6
Unemployment Rate: 8.8%
Reasons and Causes: This long, deep recession was brought on by the quadrupling
of oil prices and high government spending on the Vietnam War. This led to
"stagflation" and high unemployment. Unemployment finally reached 9% in May of
1975. (For more on this see, Stagflation, 1970s Style.)
The Energy Crisis Recession: (January 1980 - July 1980)
Duration: 6 months
Magnitude:
GDP decline: 1.1%
Unemployment Rate: 7.8%
Reasons and Causes: Inflation had reached 13.5% and the Federal Reserve raised
interest rates and slowed money supply growth, which slowed the economy and
caused unemployment to rise. Energy prices and supply were put at risk causing
a confidence crisis as well as inflation.
The Iran/Energy Crisis Recession: (July 1981 - November 1982)
Duration: 16 months.
Magnitude:
GDP decline: 3.6%
Unemployment Rate: 10.8%
Reasons and Causes: This long and deep recession was caused by the regime
change in Iran; the world's second largest producer of oil at the time, the
country came to regard the U.S. as a supporter of its ousted regime. The "New"
Iran exported oil at inconsistent intervals and at lower volumes, forcing
prices higher. The U.S. government enforced a tighter monetary policy to
control rampant inflation, which had been carried over from the previous two
oil and energy crises. The prime rate reached 21.5% in 1982.
The Gulf War Recession: (July 1990 - March 1991)
Duration: 8 months
Magnitude:
GDP Decline: 1.5
Unemployment Rate: 6.8%
Reasons and causes: Iraq invaded Kuwait. This resulted in a spike in the price
of oil in 1990, which caused manufacturing trade sales to decline. This was
combined with the impact of manufacturing being moving offshore as the
provisions of North American Free Trade Agreement (NAFTA) kicked in. The
leveraged buyout of United Airlines triggered a stock market crash.
The 9/11 Recession: (March 2001 - November 2001)
Duration: 8 months
Magnitude
GDP Decline: 0.3
Unemployment Rate: 5.5%
Reasons and Causes: The collapse of the dotcom bubble, the 9/11 attacks and a
series of accounting scandals at major U.S. corporations contributed to this
relatively mild contraction of the U.S. economy. In the next few months, GDP
recovered to its former level. (For more information, read Crashes: The Dotcom
Crash.)
Conclusions
So what do all these very different recessions have in common? For one, oil
price, demand and supply sensitivity appear to be consistent and frequent
historical precursors to U.S. recessions. A spike in oil prices has preceded
nine out of 10 post-WWII recessions. This highlights that while global
integration of economies allows for more effective cooperative efforts between
governments to prevent or mitigate future recessions, the integration itself
ties the world economies more closely together, making them more susceptible to
problems outside their borders. Better government safeguards should soften the
effects of recessions as long as regulations are in place and enforced; better
communications technology and sales & inventory tracking allows businesses and
governments to have better transparency on a real time basis so that corrective
actions are made to forestall the accumulation of factors and indicators
contributing to or signaling a recession.
More recent recessions, such as the housing bubble, the resulting credit crisis
and the subsequent government bailouts are examples of excesses not properly or
competently regulated by the patchwork of government regulation of financial
institutions. (For another perspective on credit crisis, see The Bright Side of
The Credit Crisis.)
Contraction and expansion cycles of moderate amplitude are part of the economic
system. World events, energy crises, wars and government intervention in
markets can affect economies both positively and negatively, and will continue
to do so in the future. Expansions have historically exceeded previous highs in
economic growth trends if capitalist fundamentals applied within regulatory
guidelines govern the markets.
by Dan Barufaldi
Dan Barufaldi is an independent consultant associated with the management
consulting and global business development firm, Globe Lynx Group, located in
Lewiston, NY. He has a bachelor's degree in economics from Cornell University.
Previous positions include president and CEO of Colonial Printing Ink
Corporation, general manager of the Decorative Products Division of
Johnson-Matthey, Inc., director of sales and marketing of the U.S. Colorants
Division of CIBA-Geigy Corporation. He has also worked extensively in
international business in China, the U.K., Western Europe, Canada, Sweden,
Argentina and Chile. Barufaldi has authored business articles and columns in
four newspapers and several Chamber of Commerce publications.