How fast can the economy recover from a recession? A faster recovery would look like a V-shaped bounce. A slower recovery would look like a “swoosh.” The path depends on the economic sectors and time series data you look at. Here are some FRED Blog examples that study past episodes.
- Mortgage, credit card, and commercial real estate delinquency rates were slow to decline after the 2007-2009 recession.
- The unemployment rate decreased relatively fast prior to the Great Recession but not so afterward.
- Manufacturing activity has recovered fast after recessions –although employment in manufacturing has not.
- Financial stress quickly decreased after the Great Recession was over
What about the headline economic indicator, gross domestic product? The speed of the recovery of GDP depends on factors such as the immediate cause of the recession, the depth and length of the economic contraction, and global events occurring during the recovery.
In the hope that, even in these extraordinary times, history can teach us a lesson, we look at the FRED graph above. It shows recoveries since GDP data have been available:
- the slowest, from the Great Recession of 2007-2009
- the fastest, from the 1937-1938 recession
- and three “goldilocks” recoveries: after the 1981-1982, 1990-1991, and 2001 recessions.
The zero “date” represents the year each recession started. For all recessions except the one in 2001 (purple line), the path dips below 100 a year later, which represents a contraction in overall economic activity. For all recessions except the Great Recession (teal line), two years later real GDP is already higher than pre-recession levels. You can read more about tracking recoveries here.
How this graph was created: From a previous blog post: Search FRED for “annual real gross domestic product” and select the series with the ID “GDPCA.” Add the same series to the graph four more times. Next, change the units to “Index (Scale value to 100 for chosen date)” and use the expanded menu to select the date to which you’d like to index each series. From the U.S. recession menu, select these dates for the five series: 1937-05-01; 1981-07-01; 1990-07-01; 2001-03-01; and 2007-12-01, the start dates of the Great Depression’s second recession, early 80s recession, early 90s recession, early 2000s recession, and Great Recession (according to the NBER), respectively.
For each series, check the “Display integer periods” box. The x-axis will show integers as time periods instead of dates. The base period is shown as 0: Negative numbers represent periods (years, in this case) before the base period, and positive numbers represent periods after the base period. Change the start integer to 0, so the graph begins at the start of each recession. Change the end integer to 7, so the graph ends 7 years after each recession started. Finally, to use the same graph style shown here, select the circle option under “Mark Type.”
Suggested by Diego Mendez-Carbajo.