Chart Book: The Legacy of the Great Recession
Updated December 9, 2014
The United States went through its longest, and by most measures worst economic recession since the Great Depression between December 2007 and June 2009. This chart book documents the course of the economy following that recession against the background of how deep a hole the recession created – and how much deeper that hole would have been without the financial stabilization and fiscal stimulus policies enacted in late 2008 and early 2009.
Part I: Recovery Began in June 2009
The Economy Began Growing in Mid-2009
Economic activity as measured by real (inflation-adjusted) gross domestic product (GDP) was contracting sharply when policymakers enacted the financial stabilization bill (TARP) and the American Recovery and Reinvestment Act. The economy began growing in 2009, but the pace of recovery has been modest.
Private Payroll Employment Has Grown For 57 Months
The pace of monthly job losses slowed dramatically soon after President Obama and Congress enacted the Recovery Act in February 2009. The trend in job growth in 2010 was obscured by the rapid ramp-up and subsequent decline in government hiring for the 2010 Census (which is now over), but private employers have added 10.9 million jobs to their payrolls in the 57 months since February 2010, an average of 192,000 jobs a month. Private employers added 314,000 jobs to their payrolls in November, while government added 7,000, bringing total nonfarm payroll employment growth to 321,000.
Part II: The Recession Put the Economy in a Deep Hole
GDP Fell Far Below What the Economy Was Capable of Producing
In the third quarter of 2014, the demand for goods and services (actual GDP) was roughly $619 billion (about 3.4 percent) less than what the economy was capable of supplying (potential GDP). This output gap, which is manifested in excess unemployment and idle productive capacity among businesses, is the legacy of the Great Recession. Congressional Budget Office projections show the gap closing over the next few years as actual GDP grows somewhat faster than potential GDP.
GDP grew at a 3.9 percent annual rate in the third quarter, and it reached a level 2.4 percent higher than in the same quarter a year ago. Producers modestly augmented their third quarter sales from current production by selling goods from inventories of goods produced in earlier quarters. As a result, final sales (GDP less inventory accumulation or plus reductions in inventories), which often is a better measure of the underlying strength of demand for goods and services, rose 4.1 percent -- 3.9 percent from current production and 0.1 percent from reductions in inventories (in rounded numbers). Continued growth at around a 4 percent annual rate over the next year or so would close the output gap significantly.
Job Losses Were Unprecedented
Employers began to add jobs in 2010. Progress erasing the jobs deficit was slow, but the economy has now recovered the 8.7 million jobs lost between the start of the recession in December 2007 and early 2010 and continued to add jobs since. Nonfarm payroll employment was 1.2 percent (1.7 million jobs) higher in November 2014 than it was at the start of the recession.
Surpassing the pre-recession peak was a milestone on the way to a full jobs recovery, but population growth over the past several years means the potential labor force is larger than it was then. Employers have expanded their payrolls at a 241,000-a-month pace this year, and such growth must continue to restore normal labor market conditions in a reasonable period of time.
The Unemployment Rate Rose to Near Its Postwar High...
The unemployment rate rose far higher than in the previous two recessions and far faster than (though not quite as high as) in the deep 1981-82 recession. Technically, the recession that began in December 2007 ended in June 2009 as the economy began growing again, but at 5.8 percent in November unemployment is not much lower than it was at its peak in the previous recession - and would be higher still if, as discussed below, labor force participation had not declined as much as it has.
...And Has Stayed High Long After the End of the Recession
The relatively modest pace of job growth over most of the recovery kept the unemployment rate high long after the end of the recession. This is similar to what happened in the previous two recessions, and does not resemble the fairly rapid decline that followed the severe 1981-82 recession. While the unemployment rate is much lower now than it was early in the recovery, the Congressional Budget Office estimates that if demand were stronger and there were no output gap, the unemployment rate would be 5.5 percent instead of 5.8 percent and the Federal Reserve Board staff estimates that it would be 5.0 percent.
The Share of the Population with a Job Fell to Levels Not Seen Since the Mid-1980s
The sharp rise in the unemployment rate and discouragement over the prospects of finding a job caused a decline in the percentage of the population in the labor force (those either working or looking for work). As a result of rising unemployment and declining labor force participation, the percentage of the population with a job fell sharply in the recession and has remained depressed in the recovery. The labor force participation rate has recently touched levels last seen in 1978 and the percentage of the population with a job has been stuck near levels last seen in the early 1980s.
Long-Term Unemployment Rose to Historic Highs
During the recession, the share of the labor force unemployed for more than 26 weeks rose higher than at any point in the past six decades. While it has declined from its peak, the long-term unemployment rate in November was 1.8 percent, which is near the highest levels reached prior to the Great Recession (in the immediate aftermath of the 1981-82 recession). Long-term unemployment remains a significant concern: more than three in ten (30.7 percent) of the 9.1 million people who were unemployed in November 2014 had been looking for work for 27 weeks or longer.
Labor Market Slack Reached a Record High
The Labor Department’s most comprehensive alternative unemployment rate measure — which includes people who want to work but are discouraged from looking and people working part time because they can’t find full-time jobs — recorded its highest reading on record in November 2009 in data that go back to 1994. In November 2014, this rate was 11.4 percent.
The Number of People Looking for Work Swelled Compared with the Number of Job Openings
At one point at the beginning of the recovery there were 7 people looking for work for every job opening. That ratio has declined substantially but has room to fall further. In October 2014, 9.0 million workers were unemployed but there were only 4.8 million job openings. That is a little less than two unemployed workers for every available position — in other words, even if every available job were filled by an unemployed individual, about half of all currently unemployed workers would still be unemployed. This calculation does not include the people who want to work but are not looking because job opportunities remain limited or those working part time because they can’t find full-time jobs
Part III: The Great Recession Would Have Been Even Worse without Financial Stabilization and Fiscal Stimulus Policies
GDP Would Have Been Lower Without the Recovery Act...
The Recovery Act was designed to boost the demand for goods and services above what it otherwise would be in order to preserve jobs in the recession and create them in the recovery. The Congressional Budget Office finds that GDP has been higher each year since 2009 than it would have been without the Recovery Act (with the largest impact in 2010 when GDP was between 0.7 and 4.1 percent higher than it otherwise would have been). The impact diminished, as expected, as the economy recovered, but CBO estimates that even at the end of 2012 GDP was between 0.1 and 0.6 percent larger than it would have been without the Recovery Act.
...And Unemployment Would Have Been Higher
The Congressional Budget Office estimated that because of the Recovery Act, the unemployment rate has been lower each year since 2009 than it otherwise would have been. The maximum effect was in 2010, but CBO estimates that even in the fourth quarter of 2012 the unemployment rate was 0.1 to 0.4 percentage points lower than it otherwise would have been and employment was between 0.1 million and 0.8 million jobs greater than it otherwise would have been.