Yesterday’s GDP report confirmed what many had already suspected: the current economic downturn is the worst since World War II.
According to the advance estimate, GDP fell at a 1.0% annualized pace in the second quarter, somewhat better than consensus estimates (which were looking for a decline in the 1.5% range). Revisions to last year, however, revealed than earlier parts of the recession were more severe than originally estimated.
Putting it all together, GDP has declined by an estimated 3.9% over the past four quarters. That edges out the recession of 1957-58, when GDP fell by 3.7% in just two quarters, as the deepest contraction in GDP since World War II.
To put this in context, the following chart shows the magnitude of all GDP declines since 1947:
There have been 25 such declines, ranging in length from one to four quarters. The current downturn beats all the others.
There wasn’t room to include the dates of the downturns in that chart, so here’s one that shows just the top five declines:
Two important caveats:
- These data are subject to further revision. That’s particularly true for the current downturn. When we look back five years from now, it’s possible that the past four quarters will look even worse or that they will get revised down enough to fall back under the downturn of 1957-58.
- Even more important, the downturn might not be over yet. Most forecasters expect the economy to grow, possibly tepidly, in the remainder of the year, but we can’t rule out further declines. As a result, that green bar could get even larger.