Last 25 Years - Most Stable Economy in U.S. History

Over the last 25 years, the U.S. economy has been in recession only 5.3% of the time, compared to the much higher frequencies of recessions in previous periods of comparable length (see graph above).

The U.S. economy has become increasingly more stable over time (see graph above). Since 1985, real GDP growth has fluctuated in a range between 0 and 5%. Despite a slowdown, or even a recession, we are fortunate to be living in the most economically stable period in U.S. history, with the lowest frequency of recessions in history.

Comments

[Eric Boughton]

Thanks for this extremely interesting chart. I believe that a fair portion of the noted decline in economic volatility is due to the fact that the methods of measuring economic activity have changed steadily since 1900. Many indexes (most notably CPI, but also many other indexes of economic activity) which go into the calculation of GDP are now "seasonally adjusted", "hedonically adjusted", and otherwise "smoothed". The farther you go back in the history of economic measurement, the fewer such adjustments you will find have been made. Therefore, regardless of the underlying volatility of the economy, one would "discover" reduced volatility today.

That having been said, I do think the general trend is correctly identified: economic hard times are less frequent today, as evidenced by non-adjusted factors such as bank failures, (certain) unemployment measures, etc.

An interesting question is of course whether this is a sustainable development. If pressed, I would conclude that it is not: that economic activity will go through periods of higher volatility for some 25-year stretch in the next century. I may even be around to see it!