The Worst Economic Downturn Since WWII

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.
About Donald Marron 294 Articles

Donald Marron is an economist in the Washington, DC area. He currently speaks, writes, and consults about economic, budget, and financial issues.

From 2002 to early 2009, he served in various senior positions in the White House and Congress including: * Member of the President’s Council of Economic Advisers (CEA) * Acting Director of the Congressional Budget Office (CBO) * Executive Director of Congress’s Joint Economic Committee (JEC)

Before his government service, Donald had a varied career as a professor, consultant, and entrepreneur. In the mid-1990s, he taught economics and finance at the University of Chicago Graduate School of Business. He then spent about a year-and-a-half managing large antitrust cases (e.g., Pepsi vs. Coke) at Charles River Associates in Washington, DC. After that, he took the plunge into the world of new ventures, serving as Chief Financial Officer of a health care software start-up in Austin, TX. After that fascinating experience, he started his career in public service.

Donald received his Ph.D. in Economics from the Massachusetts Institute of Technology and his B.A. in Mathematics a couple miles down the road at Harvard.

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