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Monday, November 3, 2014

Great Depression vs. Great Recession

Why does the US Recovery from the Great Recession feel so sluggish?  That's because it is!

Although the overall collapse in REAL GDP was relatively shallow  (-3.1% from peak to trough) and took place over two years (2008 to 2009), the recovery in the five years since then has been very anemic.  The economy reached parity with its pre-recession peak in 2011, only four years after the Great Recession started in December 2007.   In 2014, the US economy is only 10.9% larger than the bottom in 2009, averaging only 2.1% growth every year since the Great Recession bottomed out.

The overall economic contraction during the Great Depression was much more severe (-26.7% from peak to trough) and took much longer (four years from 1930 to 1933).  Economic parity with its pre-depression peak was only reached in 1936, seven years after the start of the Great Depression. Despite the severity and depth of the economic contraction, it only took three years for the US economy to reach parity with pre-depression peak in 1929.  Recovery, in terms of economic growth rates, was a lot more robust, averaging 10.9% annually during this period.  In the five years since the US economy bottomed out in 1933, the US economy was 38.6% larger than the bottom in 1933, averaging 6.7% growth per year every year. In nominal terms, the US economy only recovered its pre-depression peak only sometime in 1941, when WWII spending began in earnest.


Source: www.worldbank.org, www.bea.gov, Reinhart and Rogoff, "This Time is Different"


Why was the recovery during the Great Depression a lot more robust than the Great Recession?  That is the subject of future blog posts.

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