Lessons from previous U.S. recessions and recoveries

The US economy is emerging from a period of significant weakness. This article examines how US economic activity evolved during previous post-WWII recessions and recoveries, and considers what this indicates for the current period. Recoveries following previous US recessions have tended to be rapid and primarily a result of strength in the household sector. However, previous US recessions have not been associated with the significant financial disruptions that occurred during the global financial crisis. Recoveries in other economies following financial crises have tended to be protracted, especially when associated with synchronised global slowdowns. Given current economic conditions, particularly the weakness in the household sector, the current US recovery is likely to be quite gradual. Consequently, recovery is likely to be more akin to the protracted recoveries seen in other economies following financial crises, rather than the rapid recoveries that have typically followed other post-WWII recessions in the US.