“Recession” can be a scary word, but economic contractions are fairly common throughout the history of the United States. In fact, they’re perfectly normal parts of the overall business cycle, during which the economy expands, contracts, and then expands again.
It’s during certain contractions, which we usually refer to as recessions, that life can get difficult, as a brief walk through U.S. recession history shows.
While the U.S. most recently experienced a short recession in the wake of the COVID-19 pandemic, and no one knows when the next recession might occur, it’s important to understand that recessions are common — and so are the recoveries.
What Exactly Is a Recession?
A recession is a period of time during which the economy contracts, or shrinks. There are some typical hallmarks of a recession: Stock markets fall, businesses fail or close, and unemployment goes up. Indicators, such as U.S. gross domestic product (GDP), also dips into the negative.
💡 Dive deeper: Understanding Recessions and What Causes Them
While recessions are often “called” following two-straight quarters of negative GDP growth, that’s more of a layman’s definition. Recessions are, in fact, officially declared by the Business Cycle Dating Committee at the National Bureau of Economic Research (NBER).
The NBER, and the economists comprising it, look at a number of economic indicators when deciding whether to label a period of economic contraction a recession or not. Those might include employment numbers, production, personal income, and more. As such, it’s not an exact science.
Also, as noted, a recession in the U.S. economy isn’t exactly uncommon. The NBER’s measures show that, prior to the COVID-19 pandemic, U.S. recession history comprises as many as 33 recessions.
The last time the U.S. experienced a recession was in 2020. But that was a relatively short recession. The biggest recession in U.S. history sparked the Great Depression, between 1929 and 1933, though the Great Recession (2007-2009) was the worst in modern times.
But U.S. recession history stretches way back nearly to the founding of the country itself.
Earliest Known Recessions
Strikingly familiar to the Great Recession of 2008 to 2009, the recession of 1797 is believed to have been caused by a credit expansion and an investment bubble that included real estate, manufacturing, and infrastructure projects.
Problems ensued, bringing about a recession that affected nearly everyone from investors to shopkeepers to laborers.
The Panic of 1857 wasn’t the first financial crisis in the United States, but thanks to the invention of the telegraph, news about the crisis spread quickly across the country.
Most historians attribute the panic to a confidence crisis that involved the failure of the Ohio Life Insurance and Trust Company, but other events have also been cited, including the end of the Crimean War overseas (which affected grain prices), excessive speculative investing in various markets, and questions about the overall stability of the U.S. economy.
Often referred to as the “Long Depression,” the Depression of 1873–1879 started with a stock market crash in Europe. Investors there began selling their investments in American projects, including bonds that funded railroads.
Without that funding, the banking firm Jay Cooke and Company, which was heavily invested in railroad construction, realized it was overextended and closed its doors. Other banks and businesses followed; and from 1873 to 1879, 18,000 U.S. businesses went bankrupt, including 89 railroads and at least 100 banks.
At the same time, the Coinage Act of 1873 demonetized silver as the legal tender of the United States, in favor of fully adopting the gold standard. The withdrawal of silver coins further contributed to the recession, as miners, farmers, and others in the working class had few ways to pay their debts.
Like many other financial downturns, this depression was preceded by a series of events that undermined public confidence and weakened the economy, including disputes over monetary policy (particularly gold vs. silver), underconsumption that led to a cutback in production, and government overspending.
Two of the country’s largest employers, the Philadelphia and Reading Railroad and the National Cordage Company, collapsed, and the stock market panic that followed turned into a larger financial crisis.
Banks and other financial firms began calling in loans, causing hundreds of businesses to go bankrupt and fail, and as a result, unemployment rates and homelessness soared.
Recessions Between 1900-2000
The recession that occurred between May 1907 and June 1908 was preceded by the San Francisco Earthquake, which took a toll on the insurance industry, and was also influenced by the Bankers Panic of 1907 which caused a huge stock market drop.
Those events spread fear across the country and a lack of confidence in the financial industry, causing more banking failures. As a result, the banking industry experienced major changes, including the creation of the Federal Reserve System in 1913, which was designed to provide a more stable monetary and financial system.
Most recessions last months. The Great Depression lasted years, and is generally regarded as the most devastating economic crisis in U.S. history. It had many causes, including reckless speculation, volatile economic conditions in Europe, and overvaluation that ended in a stock market crash in 1929.
Consumer confidence crashed as well, and a downturn in spending and investment led businesses to slow down production and lay off workers.
By early 1933, after a series of panics caused investors to demand the return of their funds, thousands of banks closed their doors. Immediately upon taking office, President Franklin D. Roosevelt began implementing a recovery plan, including reforms known as the New Deal.
He also moved to protect depositors’ accounts with the new Federal Deposit Insurance Corporation (FDIC). And he created the Securities and Exchange Commission (SEC) to regulate the stock market.
America’s entry into World War II further solidified the recovery, as production expanded and unemployment continued to drop from a high of 24.9% in 1933 to 4.7% by 1942.
The result of demobilization and a shift to a peacetime economy after World War II ended, this eight-month recession (February to October 1945) is mostly known for a precipitous 12.7% drop in the gross domestic product, or GDP.
Economists generally blame this 11-month downturn (November 1948 to October 1949) on the “Fair Deal” social reforms of President Harry Truman, as well as a period of monetary tightening by the Federal Reserve in response to rampant inflation. Although it is generally considered a minor downturn, the unemployment rate did reach a 7.9% peak in October 1949.
A combination of events led to this 10-month recession (July 1953 to May 1954), including a post-Korean War economic contraction, as well as the tightening of monetary policy due to inflation and the separation of the Federal Reserve from the U.S. Treasury in 1951.
Unemployment peaked at 6.1% in September 1954, four months after the recession was officially over.
The Federal Reserve’s contractionary monetary policy — restricting the supply of money in an overheated economy — is often cited as the cause of this economic downturn. GDP fell 4.1% in the last quarter of 1957, then dropped another 10% at the start of 1958. Unemployment peaked at 7.5% in July 1958.
This recession lasted 10 months (from April 1960 to February 1961) and spanned two presidencies. When it began, Dwight D. Eisenhower was in office, but John F. Kennedy inherited the problem (after using the downturn to defeat then-vice president Richard Nixon in the 1960 presidential election.)
Although the recession caused serious problems for many sectors of the economy (a drop in manufacturer’s sales — and, therefore, manufacturing employment — was one of the first signs of trouble), its overall effects were mostly mild.
Personal income continued to rise through much of 1960, and declined less than 1% from October 1960 to February 1961. Unemployment was high, however, peaking at 7.1% in May 1961.
Though it lasted almost a year (from December 1969 to November 1970), this recession is considered to have been relatively mild, because it brought about only a 0.6% decline in the GDP. However, the unemployment rate was high, reaching a peak of 6.1% in December 1970.
The downturn’s causes include a rising inflation rate resulting from increased deficits, heavy spending on the Vietnam War, and the Federal Reserve’s policy of increasing interest rates.
This recession, which lasted from November 1973 to March 1975, is usually blamed on rocketing gas prices caused by OPEC (the Organization of Petroleum Exporting Countries), which raised oil prices and embargoed oil exports to the United States.
Other major factors in this 1970s recession included a stock market crash that caused a bear market from 1973 to 1974, and several monetary moves made by President Richard Nixon, including implementing wage-price controls and ending the gold standard in the U.S. The result was “stagflation,” a slowing economy with high unemployment and high inflation.
There were actually two recessions during the early 1980s, according to the NBER. A brief recession occurred during the first six months of 1980, and then, after a short period of growth, a second, more sustained recession, lasted from July 1981 to November 1982.
That second recession, known as a double-dip recession, is largely blamed on monetary policy, as high-interest rates — in place to fight inflation — put pressure on sectors of the economy that depended on borrowing, such as manufacturing and construction.
Unemployment grew from 7.4% at the start of the recession to a peak of 10.8% in December 1982, the highest level of any modern recession (with the exception of 2020).
The “Reagan Boom ” of the early and mid-1980s came to an ugly end at the beginning of the 1990s, as stock markets around the world crashed, and the U.S. savings and loan industry collapsed.
When Iraq invaded Kuwait in 1990, driving up the price of oil, consumer confidence took another hit.
The recession lasted from July 1990 to March 1991, according to the NBER, but it took the economy a while longer to fully rebound. Unemployment peaked at 7.8% in June 1992, and then-presidential candidate Bill Clinton’s focus on the struggling economy helped him unseat President George H.W. Bush later that year.
Recessions Between 2000-2022
The 2001 recession lasted just eight months, from March to November, according to the NBER. And yet, the story behind the dot-com bubble trouble that triggered it remains a cautionary tale.
Investors looking for the next big thing cast aside fundamental analysis, and a frenzy grew over tech companies in the late 1990s. Many became overvalued, and the Y2K scare at the start of 2000 made investors jittery and took things up another notch.
When the tech bubble burst in 2001, equities crashed, and the 9/11 terrorist attacks only made matters worse. The Nasdaq index — one of several different stock exchanges — tumbled from a peak of 5,048.62 on March 10, 2000, to 1,139.90 on Oct 4, 2002, totaling a 76.81% fall.
On June 7, 2001, President George W. Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), which used tax rebates and tax cuts to help stimulate the economy. And by 2003, the Federal Reserve had lowered its federal funds rate to a range of between 0.75% and 1.0% in an effort to further lift economic activity.
2008 to 2009
The Great Recession — also known as the financial crisis of 2008-2009 — is as notable for its severity as for its length. U.S. GDP fell 4.3% from its highest level at the end of 2007 to its lowest point in mid-2009. Meanwhile, the unemployment rate kept rising, from 5% at the end of 2007 to 10% in October 2009.
The average home price fell about 30% between mid-2006 and mid-2009. The S&P 500 fell 57% from October 2007 to March 2009. And the net worth of U.S. households and nonprofit organizations also took a hit, dropping from approximately $69 trillion in 2007 to $55 trillion in 2009.
Though the recession was especially devastating in the U.S., where it was triggered by the subprime mortgage crisis, it was an international crisis as well. A global economic downturn resulted in an unprecedented number of stimulus packages being introduced around the world.
In the U.S., the Federal Reserve reduced the federal funds rate from 5.25% in September 2007 to a range of zero to 0.25% by December 2008. And a $787-billion stimulus package, the American Recovery and Reinvestment Act of 2009, included tax breaks and spending projects credited with helping revive the sagging economy.
As for the three main causes of the recession of 2008? It’s complicated, but regulatory changes to how banks were allowed to invest customers’ money (specifically, into derivatives) was a main cause.
From there, derivative products were created from subprime mortgages, and as demand for homes increased (and interest rates rose) many borrowers could no longer afford to pay their mortgages. Finally, a collision of security fraud and predatory lending practices nearly overwhelmed the financial sector, as banks stopped lending to each other, and a game of derivative hot-potato ended with notable bank failures.
Will the US Enter a Recession in 2023?
First and foremost: there’s no way to predict a recession, just as there’s no way to accurately, 100% predict what the stock market will do on any given day. But there are indicators that investors can keep an eye on.
As of early 2023, the U.S. was facing a unique series of issues: High inflation, rising interest rates, and cultural and demographic shifts that forced countless businesses to figure out a “new normal.” Millions of workers retired (and many died due to the pandemic), leaving a glut of unfilled jobs. Wages needed to rise, too, as goods and services became more expensive.
And yet employment remained high, businesses, in many cases, reported record profits, and though the stock market took a tumble in 2022, it largely remained at levels above the pre-pandemic period.
Taken all together, there are signs that the economy could contract in 2023, but others that don’t indicate a recession is close. Again, this is something of an unprecedented set of factors, and as such, many economists don’t quite know what to make of it yet.
It’s wholly possible that the economy could go into recession in 2023, but it’s far from guaranteed.
U.S. recession history is a long, complicated topic. But if there’s one thing you should take away from it, it’s that recessions happen, they happen fairly frequently, and they’re not the end of the world. There are many reasons that a recession could or might happen, too, and there’s often no way to accurately predict a recession.
With that in mind, you can and should keep an eye on the news, the markets, and on economic indicators to try and get a sense of what might happen in the economy. As discussed above, recessions may spell bad news, but typically only for a period of time, after which markets tend to recover.
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