If you’re a millennial, odds are that you’ve lived through multiple recessions. However, for the younger generations, while they may be familiar with the term, experiencing it is another thing altogether.
A recession is a sharp decline in economic activities that lasts for several months. During a recession, trade and industrial activities reduce, and the gross domestic product (GDP) falls in two or more successive financial quarters.
GDP is the total amount of all the goods and services produced and sold in the U.S. This does not include the goods and services produced by U.S. companies abroad or received in the U.S. as imports.
A recession affects the entire economy, including aspects like employment, production, real income, sales, and industrial production. The unemployment rate usually rises during recessions and the country’s finances shrink.
Throughout U.S. history, there have been 20 different recessions. Read on to learn more about them.
#1. The Earliest Recessions (1797-1893)
These recessions occurred at a time when the government could do little about them. Thus, they proved more harsh and punishing than the successive ones. They are as follows:
- The Panic of 1797 was an economic slump that hit the U.S. and Great Britain. It was largely caused by a land speculation bubble that burst in 1796.
- The 1857 recession spread rapidly throughout the U.S. Though brief, it had drastic consequences. More than 5,000 American businesses failed within a year, and with unemployment came many protests in urban areas.
- The 1873 recession caused by the construction of the national railway system. This led to the collapse of the largest U.S. bank and caused a recession that lasted till 1879.
- The recession of 1893 triggered by the failure of the Reading Railroad. Thereafter, other railways failed and the stock market crashed. Banks suspended cash payments. This led to the hoarding of cash and subsequently, bank failures.
#2. The Pre-World War II Recessions
There were 3 recessions before the 2nd World War. The first was the Panic of 1907, which lasted from May 1907 to June 1908. The cause of this recession was the speculation of losses that spread to trust companies.
The Great Depression of 1929 – 1938 was the biggest economic crisis in U.S. history. Consisting of two closely related recessions that happened back-to-back, the first downturn was from August 1929 to March 1933. The second downturn lasted from May 1937 to June 1938. Unemployment reached 24.9% in 1933 and remained in the double digits until World War II began.
#3. The Post World War II Recessions
During World War II, the U.S. economy boomed as the government put in billions of dollars into manufacturing and other industries to meet wartime needs. But after the war, the story was not the same.
- The 1945 recession lasted for eight months, from February to October 1945. A natural result of the demobilization from World War II, government spending dried up, and the GDP reduced by 11%. The manufacturing sector however adapted to peacetime conditions and the recession ended in eight months. The unemployment rate was 1.9 percent at its worst.
- In November 1948, a recession began and lasted till October 1949. The unemployment rate spiked up to 7.9%.
- The Post-Korean War Recession lasted from July 1953 to May 1954. During the 10-month period, GDP lost 2.2% and the unemployment level got to 6%. This decline was caused by the Federal Reserve’s monetary policy. Thus, when the Federal government decided to lower interest rates in 1953, the recession slowly ended.
- The Asian Flu Pandemic of August 1957 to April 1958 was caused by an Asian Flu pandemic that spread from Hong Kong across India and into Europe and the United States. The flu killed more than a million people worldwide. The illness also triggered a global recession that cut U.S. exports by more than $4 billion. GDP shrank by 3.3% and unemployment rose to 6.2%.
- From April 1960 to February 1961 the U.S. GDP declined 2.4% and unemployment reached nearly 7%. It ended with a round of stimulus spending in 1961 and an expansion of Social Security and unemployment benefits.
- In the December 1969 to November 1970 recession, unemployment rose to 5.5%.
- The Oil Embargo recession of November 1973 lasted till March 1975. This recession was the longest economic slump since the Great Depression. The 16-month recession saw a 3.4% reduction in GDP and a near doubling of the unemployment rate to 8.8%.
- The Second Energy Crisis and Inflation Recession lasted from January to July 1980. Inflation rose by 13.5%, the GDP declined by 1.1% but unemployment went up to 7.8%.
- In July 1981, the U.S. economy faced a recession that was known as the double-dip recession. Triggered by an oil crisis, the 16-month recession saw unemployment peak at over 10%. It ended following a combination of tax cuts and defense spending under Ronald Reagan.
- In July 1990 to March 1991, the economy faced the S&L Crisis and Gulf War Recession. This recession saw GDP decline by 1.5% and unemployment peak at 6.8%.
- The Dot-Com Crash and 9/11 terrorist attack knocked the economy in 2001. This recession was fast and shallow, with GDP down only 0.3% overall and unemployment peaking at 5.5%.
- From December 2007 to June 2009, the Great Recession, the longest downturn since the Great Depression, lasted. It was part of a global financial meltdown triggered by the collapse of the U.S. housing bubble. It lasted for an 18-month period, and unemployment reached as high as 10% and GDP shrunk by 4.3%. Heavy government spending was able to help turn the economy around.
#4. The Covid-19 Recession
The Covid-19 recession in 2020 was the worst since the Great Depression. In April 2020, the U.S. economy lost 20.5 million jobs,and the unemployment rate jumped to 14.7%. The impact of the Covid-19 pandemic also caused the 2020 stock market crash.
Although the economy grew 33.8% in the third quarter, it was not enough to make up for earlier losses. There has been a lot of speculation and steps taken to curtail the effect of this recession, the total impact of the Covid-19 recession will only be obvious in hindsight.
The Bottom Line
Recessions come with terrible effects. And many times the government looks for different ways to mitigate the lasting damage that comes with them. One way to do this is for the federal government to build emergency reserves when times are good. That way, when lean times come, the healthy reserves can create a buffer.
Government can also increase government spending on infrastructure and creation of industries. This creates jobs and provides the needed funds that individuals need to create demand.
As an individual, there are various measures that you can take to ensure that your finances are still floating during a recession. One of them is to always have an emergency fund. You also have to live within your means and avoid lifestyle creep.
You also have to be real to yourself about your risk tolerance, and diversify your investments. Long term investments are a good idea, as the dividends can come to your aid at a time you least expect.
One more thing you can do to prepare for recessions is to join the Art of Financial Planning. At the Art of financial planning, we will guide you and help you make better decisions on how to save and thrive financially, even in recessions. We care about your financial freedom.
So don’t delay. Contact us now.
