This is part five of a series on recessions. Part five is specifically about the history of recessions in the United States. Click here for part one. Click here for part two on what recessions look like. Click here for part three on why recessions occur. Click here for part four on recession signals.
Whenever there’s talk about the next recession, comparisons between current events and the recessions of the last 50 years are common. Recessions have been happening in the U.S. since the nation’s very earliest days, although the dates and even existence of early recessions have been debated because economic statistics were not kept until much later. Let’s look at some of the most important recessions to hit the U.S. over the last 50 years.
The Great Recession
Freshest on every economist’s and investor’s mind is the Great Recession, so it’s no surprise that comparisons between today’s events and the Great Recession are particularly common. The Great Recession started in December 2007 and lasted until June 2009. Unemployment during this time didn’t peak until October 2009 at 10%.
The Great Recession occurred around the subprime mortgage crisis and the popping of the housing bubble. Many of the biggest financial institutions in the U.S. collapsed, some of which received taxpayer bailouts of one form or another. Among the financial institutions which failed were Fannie Mae, Freddie Mac, Lehman Brothers, American International Group and Bear Stearns. The auto industry also encountered problems.
In response to the crises, the U.S. government bailed out banks to the tune of $700 billion and rolled out a $787 billion fiscal stimulus package.
Early 2000s recession
Although not as fresh in the minds of market watchers as the Great Recession, many still remember the recession of the early 2000s quite well. This recession followed what was the longest economic expansion in U.S. history until that time. The current economic expansion is now the longest at more than 10 years.
The recession in the early 2000s was triggered by the popping of the dotcom bubble. It lasted from March to November 2001, although it also affected the European Union in 2000. Concerns about the dotcom bubble first emerged during the late 1990s. However, the economy continued to power through those concerns, and the Federal Reserve raised interest rates several times in an attempt to guide the economy into a soft landing.
The dotcom bubble burst when the NASDAQ crashed in March 2000, and then the nation’s GDP slowed significantly by the third quarter of that year. The Dow Jones Industrial Average wasn’t really hurt by the NASDAQ crash, but after the September 11, 2001 terrorist attacks, the Dow Jones was also struck. The Labor Department estimates that the economy shed more than 1.7 million jobs in 2001 alone.
The recession in the early 1990s lasted for eight months from July 1990 to March 1991, and it was triggered by increasing inflation. The Federal Reserve raised interest rates between 1986 and 1989 in an attempt to slow inflation. Although the rate hikes did slow the growth, it didn’t stop it.
A recession eventually resulted from a combination of the oil price shock in 1990, the debt accumulation that went on during the 1980s, and pessimism among consumers. Other contributing factors included the Tax Reform Act of 1986, which ended the real estate boom that started in the early to mid-1980s.
This recession was a rather mild one, but even though the economy had recovered by early 1991, unemployment didn’t start to recover until the second half of 1992. The recession in the early 1990s followed the longest economic expansion to occur during peacetime up until that point.
Recessions of the early 1980s
The early 1980s brought two distinct recessions, with the first lasting for six months in 1980 and the second lasting more than a year from July 1981 until November 1982. Although the National Bureau of Economic Research considers these two recessions to be separate and distinct with a brief period of expansion between them, unemployment never really recovered between them, remaining relatively high during the economic expansion.
The Fed basically triggered the 1980 recession by aggressively hiking interest rates in response to the runaway inflation that occurred during the 1970s. The manufacturing and housing sectors contracted dramatically in early 1980 as the Fed made it more difficult for consumers to secure financing for vehicles and homes.
Most of the jobs that were lost during this recession came from the manufacturing industry as fewer goods were produced. The manufacturing sector saw 1.1 million jobs disappear, with one-third of the sector comprising the auto industry. Although this recession is technically considered to have ended in July 1980, by the last quarter of the year, many doubted that the economy was actually recovering rather than only seeing temporary relief.
The Federal Reserve decided to keep raising interest rates at the beginning of 1981 because inflation continued unabated. The weakness that struck the manufacturing and housing sectors the year before expanded to include other related sectors in mid-1981. Once again, the manufacturing sector was the hardest hit with 90% of all the job losses occurring within the sector. This time the services sector was also hit, especially in utilities, transportation, government, and retail and wholesale trade.
The Great Depression and before
The Great Depression started in August 1929 and lasted until March 1933, and depressions differ from recessions in that they are more severe versions of recessions. The Great Depression was triggered by a banking panic and decline in the money supply. Tariffs and a number of other factors caused the nation’s GDP, employment, prices and industrial production to decline steeply.
Recessions that occurred before the Great Depression, especially those in the early years of the nation’s history and in the 1800s and early 1900s, sometimes took the form and name of various finance-related panics. For example, perhaps the earliest recession in U.S. history was the Panic of 1785. It lasted about four years and followed the boom created by the American Revolution.
The panic started after the soaring debt and overexpansion that followed the Yorktown victory. Deflation also followed the war, and American manufacturers faced competition from British manufacturers. The lack of a solid national currency and adequate credit also contributed to the panic.
Other early recessions occurred following various wars as the nation’s economy slowed due to the end of wartime activities. There were recessions after the War of 1812, before and after the Civil War, and before and after World War I and World War II. Other key contributors to recessions before the Great Depression included failures of major banks like Jay Cooke & Company and firms like the Ohio Life Insurance and Trust Company.