Annual real GDP declined in the U.S. during nine periods since World War II before the current crisis, some of which lasted more than one year. The longest period was immediately following the war, with declines extending through three consecutive years. From the initial decline in 1945, GDP did not fully recover to its prior 1944 level despite a surge in 1948 before a second decline occurred in 1949. It was not until 1951 that annual GDP finally exceeded 1944 levels in real terms. Downturns in 1954 and 1958 were recovered more quickly with GDP exceeding prior levels the very next year. The decline in GDP associated with the oil and Israeli-Arab crisis of 1973-1974 required two full years to recover, with GDP not surpassing 1973 levels until 1976. Remaining drops in GDP were recovered in a single year until the last time in the Great Recession, when two years were needed for GDP to return to pre-recession levels. Going back slightly further, the secondary downturn during the Great Depression in the late 1930’s required two years for recovery. Only the initial downturn in the Great Depression starting in 1929 required longer, seven full years to recover to the level of real GDP prior to the downturn. Unemployment patterns tend to move inversely to GDP growth, rising when if falls and falling when it rises. This is understandable, as there is an obvious connection between production and employment needs. However, there are lags between the movements of the two economic measures and the pattern is not completely consistent. Unemployment rates typically require significantly longer to recover to previous levels after a downturn and may also show early increases before a drop in GDP is recorded. Furthermore, there has been, historically, a floor level of GDP growth necessary to yield a reduction in unemployment, although that pattern has changed since the Great Recession. Generally, if GDP growth was less than 3.0 percent in a given year (or negative), the unemployment rate in that year was equal to or higher than the previous year. Conversely, if the GDP growth was 3.0 percent or higher, the unemployment rate fell. From 1930 through 2007, a period of over 75 years, there were only three times that the unemployment rate declined in years where GDP growth was lower than 3.0 percent and none when it was negative. There were four years where GDP growth was greater than 3.0 percent but the unemployment rate still increased. Otherwise, the pattern held until the Great Recession. Since the Great Recession, a period of 10 consecutive years, real GDP growth has never exceeded 3.0 percent, yet the unemployment rate has fallen every single year, from the recessionary high of 9.9 percent in 2009 to 3.5 percent last year. The precise reason for the remarkable change has yet to be fully explained by economic theory. While most of the lags and past pattern shifts could be explained by limitations in how the unemployment rate is measured, the anticipatory behavior of companies, technological and other productivity enhancements, monetary policy, changes in the relative importance of U.S. industries with greater and lesser employment needs to overall economic output and other factors that affect either GDP or employment more or less than the other, none of them can satisfactorily explain in any plausible combination the new pattern that has emerged.
∴ PROGNOSIS
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