Jose D. Roncal

Are Recessions Really That Bad?

All eyes are on the current recession, but we tend to overlook the many U.S. recessions we've survived since the Great Depression. They’ve varied in length and severity and each had a slightly different cause and impact on the gross domestic product (GDP). But they've have also had similarities.

First, let's look at the defined differences between a depression and a recession. The definition of a recession is a decline in a country's GDP, or negative real economic growth, for two or more successive quarters of a year. In 2007, an economist at the Federal Reserve Board suggested that a combination of GDP and gross domestic income (GDI) may be more accurate in predicting and defining a recession.

A depression refers to a sustained downturn in one or more national economies. It is more severe than a recession (which is seen as a normal downturn in the business cycle).

The Great Depression from 1929 to late 1930s was marked by a stock market crash and a banking system collapse that sparked a global downturn, including a second but relatively minor downturn in 1937. This is where we'll begin listing a few key points about past recessions.

May 1937 - mid 1938: Roosevelt Recession
GDP declined by 3.4% and more than 4 million were unemployed (19.1%).
The stock market crashed in late 1937, an event that big business blamed on Roosevelt's "New Deal." The new Social Security Insurance program caused $2 billion to be held in a Federal trust fund, which meant vast sums of money were pulled out of circulation.

February 1945 - October 1945: Union Recession
GDP declined by11% and unemployment was a moderate 1.9%.
As WWII wound down, there was a slow transition period between ending war-related manufacturing and ramping up the civilian job market. Unions were pushing for higher wages and credit was hard to come by.

November 1948 - October 1949: Post-War Recession
GDP declined by 1.1% and unemployment rose slightly to 5.9%.
Large numbers of war veterans re-entered the workforce displacing civilian workers and causing unemployment to rise. There was more concern over inflation than unemployment, so there was very little government intervention.

July 1953 - May 1954: Post-Korean War Recession
GDP declined by 2.2% and the unemployment rate was at 2.9, the lowest since WWII.
At the end of the Korean War, more dollars earmarked for national security. The Feds tightened money to curb inflation, which boosted interest rates causing a lack in consumer confidence and decreased product demand.

August 1957 - April 1958: Eisenhower Recession
GDP decline by 3.3% and unemployment was up to 6.2%.
The tighter monetary policy was supposed to curb inflation, but prices continued to rise. A world-wide recession and a strong U.S. dollar created a foreign trade deficit.

November 1973 - March 1975: Oil Crisis Recession
GDP declined by 3.6% and unemployment rose to 8.8%.
This long and deep recession was triggered by steep oil prices and the high cost of the Vietnam War creating "stagflation" and unemployment to reach 9% by May of 1975.

January 1980 - July 1980: Energy Crisis Recession
GDP declined by 1.1% and unemployment was at 7.8%.
Inflation rose to 13.5% and the Feds boosted interest rates and slowed the money supply growth. This caused a further slowing of the economy and a rise in unemployment. Since energy prices were high and supply low, consumer confidence took another hit.

July 1981 - November 1982: Iran/Energy Crisis Recession
GDP declined by 3.6% and unemployment hit 10.8%.
The recession was caused by Iran's revolution, which forced oil prices higher. The Feds tried to control inflation with tighter monetary policies. The prime rate reached 21.5% in 1982.

July 1990 - March 1991: Gulf War Recession
GDP declined by 1.5% while unemployment was at 6.8%.
Iraq invaded Kuwait causing another spike in oil prices. The North American Free Trade Agreement (NAFTA) kicked in causing some manufacturing to be moved offshore. The leveraged buyout of United Airlines set off a short-term stock market crash.

March 2001 - November 2001: 9/11 Recession
GDP declined by a mere 0.3 and the unemployment rate was at 5.5%.
This was a relatively mild recession considering the dramatic events of the period including the collapse of the dotcom bubble, the 9/11 attacks and a series of accounting scandals like Enron and other major U.S. corporations.

Current Recession
That brings us up to the current crisis caused by the collapse of the housing market, the collapse of the banking industry in the US and Europe, and a credit crunch that furthered the economic melt down.

The current recession, officially announced on December 1, 2008, fits the pattern of recent ones—but is likely to last longer than any other post-war downturn.
The unemployment rate as of January 2009 is 7.2%, a 16-year high. More than 2.6 million jobs were lost in 2008. Absent an economic booster shot, the U.S. economy is likely to lose another 2.4 to 2.8 million jobs in 2009, which would push the national unemployment rate above 9%.

This comment was posted by Jose Roncal, co-author of "The Big Gamble: Are You Investing or Speculating?" - For more information, visit financialspeculation.c...