BEA Revisions: Recession Was Worse Than Previously Thought

by: Donald Marron

The Bureau of Economic Analysis rewrote history on Friday. Along with GDP data for the second quarter, BEA also published revisions to its GDP estimates since the start of 2007.

Bottom line: The recession was worse than originally thought. The economy contracted by 4.1% from peak to trough (Q2 2008 to Q2 2009), up from the 3.9% previously estimated.

The Great Recession has thus solidified its position as the worst downturn since World War II:

As painful as it has been, the recession remains a far cry from the Great Depression, when economic activity plummeted almost 27%:

Which raises an important question: Just how close did the Great Recession get to being the Great Depression 2.0?

Mark Zandi and Alan Blinder took a crack at that question in a paper released last week. Their answer: If it weren’t for aggressive monetary and fiscal policy responses, the U.S. economy would have contracted more than 12% during 2008, 2009, and 2010 — about half a Great Depression (and arithmetically, but not economically, comparable to the demobilization after WW II).