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posted on 26 April 2017

Recession To Recovery: A Decade In Perspective

from the Atlanta Fed

The Cyclical Recovery

In the complex U.S. economy, trends do not often fit cleanly into categories such as cyclical and secular. Broadly speaking, though, it is possible to classify certain developments as mainly cyclical and others as more persistent, or secular.

As the video explained, we have experienced a cyclical economic recovery. Let's delve deeper into cyclical elements of the economy that have, by and large, rebounded.


Annual GDP growth is a sort of speedometer for the nation's economy.

Start with the broadest gauge of the nation's entire economy. Gross domestic product, or GDP, is a monetary measure of the value of all final goods and services produced. In 2016, GDP in the United States totaled roughly $18.9 trillion, according to the U.S. Bureau of Economic Analysis. Another important macroeconomic indicator is inflation, which has been below the central bank's 2 percent target throughout the recovery.

infographic for macroeconomy section

Congress established the Federal Reserve's monetary policy objectives of maximum employment and stable prices in the Federal Reserve Act. These legislated objectives are often referred to as the "dual mandate."

Note that in charts, gray bars indicate recessions


Turning to the overall economy, GDP growth since the Great Recession has been weak by historical standards. Burdened by the depth and duration of the recession, the severe financial crisis, and various secular factors discussed later, annual real GDP growth since the end of the last recession has hovered around 2 percent. In contrast, within three years after the previous six recessions, annual GDP growth had reached almost 4 percent.

Labor Market

The labor market: More of us are working than ever.

Businesses have been hiring at a solid pace despite tepid growth in output. Consequently, aggregate employment has staged a reasonably robust cyclical recovery from a bruising downturn.

infographic for labor market section

Note that in charts, gray bars indicate recessions.

In March 2014, employment finally returned to the level of December 2007, when the Great Recession officially began. After hitting bottom in September 2010, the labor market had 75 consecutive months of employment growth through December 2016, adding 15.6 million jobs. We ended 2016 with nearly 7 million more payroll jobs than before the recession began.

Consumer Finances

Consumers' finances are much healthier.

Consumer spending is the largest single component of GDP, so the health of the consumer sector is crucial to the health of the overall economy. Several broad measures of consumers' financial well-being and spending describe a cyclical recovery.

infographic for consumer finances section

Note that in charts, gray bars indicate recessions.

During the recession, widespread unemployment produced a severe drop in aggregate labor income. At the same time, falling home and investment portfolio values battered consumers' wealth. The collective net worth of households (the value of assets less liabilities) has since climbed relative to their income, thanks mainly to rising stock and home prices.


The residential real estate market is vital to the economy, even though new residential construction accounts for only about 3 percent of GDP. For homeowners, purchasing a home is usually their largest single financial transaction, and their homes may become their most valuable holding. In fact, residential real estate accounts for about 70 percent of the value of all household nonfinancial assets. The real estate sector also supports hundreds of thousands of construction jobs, as well as employment for those selling homes, making home loans, and producing and selling housing-related goods and services.

infographic for housing section

Note that in charts, gray bars indicate recessions.

Home prices climbed to record levels in 2006 in the run-up to the housing bubble but began falling before the recession hit. They reached a new low in 2012 and have for the most part recovered to the same levels they were at the peak of the housing market. There are concerns that upward pressure on home prices is making homes unaffordable in some areas.

Monetary Policy

Monetary policy was the primary public policy tool deployed during much of the recovery, and it likely supported the cyclical rebound. Even though the economy has returned to a healthier state, by historical standards, monetary policy remains accommodative - interest rates are low. That's largely because of the secular factors restraining the recovery.

infographic for monetary policy section

Note that in charts, gray bars indicate recessions.

Secular Trends

Beneath the cyclical healing lie stubborn forces that have not been much influenced by monetary policy, and probably won't be. Addressing these issues is likely up to federal and state legislative bodies, along with the private sector.

infographic for secular trends section

Note that in charts, gray bars indicate recessions.

Age demographics influence numerous aspects of the economy including consumption, wealth distribution, and investment patterns. A number of researchers view aging as a major reason for recent tepid GDP growth. In an October 2016 paper, a group of Federal Reserve economists writes that demographic factors, especially aging, have helped create a “new normal" of slow GDP growth and low interest rates that could last decades.

Unexpected headwinds keep interfering with steady growth.

Unpredictable events can sow uncertainty that can restrict hiring and capital spending. Events that generate policy uncertainty "foreshadow declines in investment, output, and employment," economists Scott R. Baker, Nicholas Bloom, and Steven J. Davis write in a March 2016 paper. That trio maintains an index measuring economic policy uncertainty.

Of course, unpredicted events didn't start in the past decade. But the index of policy uncertainty has drifted upward since the 1960s, Baker, Bloom, and Davis write. And since 2007, policymakers have faced seemingly unrelenting waves of uncertainty. Consequently, says Dennis Lockhart, Atlanta Fed president from early 2007 until the end of February 2017, "It's very difficult, in real time, to know exactly where the economy is."

A windy decade

An extraordinary increase in house prices and mortgage debt partially set the stage for the financial crisis. From 1998 to 2006,average U.S. home prices more than doubled, while home mortgage debt rose from the equivalent of 61 percent of GDP to 97 percent of GDP.


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