How Did GDP Change From 2008 What Caused These Changes?

According to new numbers released today by the United States Bureau of Economic Analysis, economic growth declined in most states and regions of the United States in 2008, while overall growth dropped. In 38 states, real GDP growth slowed, with contractions in construction, manufacturing, and finance and insurance stifling growth in several. 1 State-by-state growth in real GDP dropped from 2.0 percent in 2007 to 0.7 percent in 2008. 2

Why did the economy contract in 2008?

The Great Recession struck with a force in 2008. The subprime mortgage crisis of 2006 and the banking crisis of 2007 had extended throughout the economy. The damage revealed by the quarterly GDP data was hidden by the annual GDP numbers. In the fourth quarter, the economy shrank by 8.4%.

What was the 2008 GDP?

The US economy is improving. As can be seen in the ranking of GDP of the 196 nations that we publish, the United States is the world’s leading economy in terms of GDP, with a total of $14,769,900 million in 2008.

What causes GDP fluctuations?

Changes in prices or output can create changes in nominal GDP, which is GDP measured in current or nominal prices. The GDP deflator, which is a weighted average of the prices of all final goods and services generated in the economy, is a price index for all final goods and services.

What happened to economic growth in the last 50 years?

From 1948 to 2021, the GDP Annual Growth Rate in the United States averaged 3.14 percent, with a high of 13.40 percent in the fourth quarter of 1950 and a low of -9.10 percent in the second quarter of 2020.

In 2008, how much did the economy shrink?

The phrase “Great Recession” is a pun on the phrase “Great Depression.” The latter occurred in the 1930s, with a GDP fall of more than 10% and an unemployment rate of more than 25% at one point. While there are no formal criteria for distinguishing a depression from a severe recession, experts agree that the late-2000s downturn, in which the US GDP fell by 0.3 percent in 2008 and 2.8 percent in 2009 and unemployment briefly hit 10%, did not reach depression status. However, this is without a doubt the worst economic downturn in recent memory.

What was the aftermath of the 2008 financial crisis?

This RFP has now been closed. The general rationale for the 30 project wins made in 2011 through early 2012 can be found in the original RFP outlined below.

The United States is now two years past the official end of the Great Recession, which lasted the longest and deepest since the 1930s. Although GDP and the stock market have risen since the recession ended in June 2009, the social and economic consequences of the downturn continue to ripple across the US economy. According to labor market data, more than 14 million Americans are unemployed, with 6.3 million of them out of work for more than six months. Another 11.3 million people are working less than they would like either part-time or looking for work but not finding it. Job growth is encouraging but sluggish, and at current rates of growth, reestablishing the pre-recession unemployment rate of 5% could take a decade or longer. Although the unprecedented number of home foreclosures experienced during the recession and its immediate aftermath has lessened, the housing market remains stagnant, with home prices hitting new lows in the first quarter of 2011. State and local budgets have seen huge gaps between revenues and expenditures as a result of the economic downturn, and stock market losses have exposed unfunded pension plans across the country. To attain balanced budgets, governments at all levels will have to undertake a mix of discretionary cuts and higher taxes, as predicted by the long-term repercussions of this recession. Public sector job losses have canceled out 40% of private sector employment increases in the two-year recovery, and government workforces are set to be under pressure for some time to come.

Given the likelihood of continued slow growth, high unemployment, low home values, and severe government fiscal limitations, the Russell Sage Foundation has opted to fund a series of studies on the social and economic consequences of the Great Recession. Long-term economic stagnation will most likely change American institutions and significantly impair many Americans’ life chances. We’re looking for studies that look at these effects across a broad spectrum of social and economic life, including, but not limited to, effects on individual aspirations and optimism about the future; health and mental health; family formation and stability, as well as children’s well-being; the viability of communities, particularly those hardest hit by the foreclosure crisis; the performance of the educational system at all levels; the incidence of crime and the performance of the criminal justice system. The Appendix demonstrates the types of topics that the Foundation is concerned about in each of these social and economic spheres. These are examples of the types of challenges the Foundation is interested in solving, although they are not meant to be exhaustive or exclusive.

In general, the Foundation will consider funding for a variety of projects, including:

Long-term studies on the effects of the Great Recession over the next three to five years. As a result, the effects of the fiscal crisis on state budgets, for example, may take some time to manifest. A comparison of the decisions governments make in balancing their budgets, as well as the implications of those choices, may not be significant for several years after the current crisis has ended. In another area, the consequences of the recession on families may not become apparent until after families have exhausted their resources in dealing with unstable work or housing, and if there are lasting repercussions on children, these may take even longer to manifest.
Analytic research that look at the long-term repercussions of the Great Recession across a variety of social and economic realms. An examination of how the recession affects underprivileged adolescents, for example, could look into the probable link between local variation in unemployment, school dropout, and criminal involvement. Alternatively, a study of older Americans’ labor market participation might look into the consequences of changes in pension wealth and the early receipt of Social Security benefits after a job loss.
Innovative investigations of the Great Recession’s deeper, more subtle consequences on psychological attitudes and social norms. Will the exceptionally high rates of long-term unemployment that have characterized this recession and its aftermath, for example, result in long-term scarring and decreased aspirations? Will high rates of overdue debt and “underwater” mortgages impair financial responsibility in general and undermine default norms? Or will the need to deleverage lead to a more conservative and cautious approach to household financial decisions in the United States? To assess the subjective impact of changed financial conditions, studies of these subjective issues may require a creative combination of qualitative and quantitative methodologies.
Studies of how the Great Recession has affected American institutions, particularly in reaction to economic and other challenges that have arisen during the crisis and its aftermath. Universities, for example, have faced severe budget restrictions as a result of state budget cuts or private endowment losses at a time when student financial aid needs are rising. What has been the impact of universities’ responses to these pressures? To establish generalizations about institutional change, studies of institutional adaptation of topics like these may rely on case studies of specific institutions or the collecting of administrative data across institutions.

In general, we’re looking for creative research projects that go beyond simple trend analysis to look at unintended consequences of the Great Recession. Such study might use comparisons of present conditions with what is known about the results of previous recessions to make testable predictions about the current slump’s likely effects. We expect many of the funded initiatives to employ publicly available data sets, but we also understand that valid assessments of predictions regarding the effects of the Great Recession may require conducting new waves of past surveys or replicating data from other sources that give pre-recession baselines. We are happy to evaluate ideas for restricted data acquisition or collection in such instances. The Foundation’s funding will be limited to research help, data analysis expenditures, and limited release time for analyzing and writing up results in all other circumstances. We anticipate that all working papers and research briefs from projects financed under this initiative will be published (non-exclusively) on the RSF website.

The second round of funding for this endeavor is now underway. After the first round, we sponsored ten initiatives in nine of the appendix’s domains (a description of projects funded in the first round can be found here). We will consider projects from all domains in this round, but we are particularly interested in projects that address the following topics that were not addressed in the first round: changes in attitudes and norms caused by the economic downturn, effects on communities particularly hard hit by foreclosures and/or unemployment, changes in the incidence of crime linked to recessionary conditions, and effects of the fiscal crisis on state and local budgets. We’re also interested in study on the labor market’s performance in the United States throughout this extended era of high unemployment. Although there are no restrictions on the quantity of funding requests that will be considered, cost/benefit analysis will be a major factor in the evaluation of all projects. For your information, prizes accepted in the first round typically ranged from $75,000 to $250,000 for project periods ranging from one to four years.

We ask all academics interested in being a part of this program to send us a letter of inquiry of no more than three single-spaced pages explaining the research topic on the effects of the Great Recession that you would want to do. Your letter should explain and estimate the research expenditures involved, as well as outline and motivate the hypothesis concerning the effects of the Great Recession that you are interested in exploring. It should also specify out the empirical work required and the data sources to be used.

All letters of enquiry will be reviewed by the Foundation’s Advisory Committee, and detailed proposals will be solicited for the initiatives that appear to be the most promising.

Over the last decade, poverty in the suburbs has soared by more than a third. Although poverty rates in the inner city are still greater, the gap is closing. Earlier downturns mainly evaded the effects of suburban areas, but not this time.

What happens when a community’s unemployment rate and foreclosure rate are both high? What effect will it have on housing stock, home values, fiscal capacity, out-migration, and more ephemeral issues such as social capital and social efficacy?
What impact has the recession had on the poor’s regional distribution and concentration?
How would a decrease in residential mobility influence a community’s social infrastructure?

From less than 3% of disposable personal income in 2005-2007 to nearly 6% of disposable income in 2010, the personal savings rate has increased. Furthermore, the total quantity of outstanding consumer credit has decreased for the first time since 1940 as a result of the present crisis.

What has the recession’s overall impact been on personal finances, consumer spending, and consumer confidence?
How did households cut back on their consumption? Are these solutions viable in the event that revenues do not recover?
Have people lowered or raised their savings and retirement contributions? To stay afloat, have families taken out loans against their current investment and retirement accounts? What are the ramifications?
Are these patterns indicating a fundamental shift in consumer and financial behavior?

For the better part of the last decade, crime rates in the United States have remained steady or even decreased marginally. According to some research, those tendencies may be in peril. While the general crime rate in New York City stays steady, the most current statistics shows that the murder rate has increased by 15% over the previous year.

Will crime rates that have been declining or constant in the long run continue in the same path or change?
With fewer resources and higher demands, how well will police, courts, and prison institutions be able to function?
Will states employ early release procedures to reduce the number of people incarcerated and their costs? Is it likely that caseloads for probation and parole will vary, and if so, how will this affect technical violation rates?
What will happen if a larger number of incarcerated people are released into economically challenged communities? What will happen to those people, their families, and their communities?

Families are likely to be affected in a wide range of ways. Job losses and unemployment, one of the most apparent characteristics of the recession, have been linked to higher stress, poorer health outcomes, decreases in children’s academic achievement and educational attainment, marriage age delays, and changes in household structure. According to recent statistics, the number of multigenerational homes increased by 12% between 2006 and 2010.

What impact has it had on marriage, divorce, cohabitation, fertility, and family structure? Has this had a greater impact on some groups than others?
What have been the ramifications for home labor division? Are fathers more likely than mothers to get laid off? Is it true that mothers work more when their fathers work less?
What impact has this had on young adult children? Are more people staying at home longer because of poor career prospects? Do they need more financial and social assistance?
What has been the impact on family function, particularly the quality of parents’ relationships, parent-child connections, and parenting?
What impact has this had on children’s immediate results, such as academic performance, behavior, and delinquency, as well as their long-term life prospects?

States faced overall budget shortfalls of nearly $300 billion between 2009 and 2012 due to a drop in revenue and higher demand for state services. The American Recovery and Reinvestment Act (ARRA) brought temporary relief, but it has finally come to an end.

What policy adjustments have states implemented to overcome substantial budget deficits, given that nearly all states are suffering significant budget gaps? What are the distributional effects of policy changes at the state level?
How will governments allocate the more constrained resources associated with diminishing tax receipts, given that health and prisons have been the fastest rising parts of state budgets over the last several decades? Which states are most likely to enact tax increases rather than spending cuts, and what effect will this have on the state’s economy?
The financial crisis has brought to light the underfunding of pension systems across the country. What are the chances that states will follow through on promised benefits? What effect will it have on state budgets?

Thirty-five states reduced education budgets totalling roughly $8 billion in K-12 and higher education in 2010, and 31 states are seeking more cutbacks in 2011.

What impact do budget cuts have on the delivery of public K-12 education? What impact has graduation rates, class sizes, school closures, and teacher employment and turnover had?
What has happened to the quality of public higher education at all levels, from four-year universities to community colleges?
Has there been a rise in the demand for a college education? Has it changed as a result of the family’s socioeconomic condition or the demography of the students?
What has changed in terms of the net cost of a college education, and what are the implications for students from various socioeconomic backgrounds?

Between 2006 and 2009, the number of home foreclosure filings grew from from 1.2 million to over 4 million per year, with black and Hispanic areas being disproportionately affected. Home losses of this magnitude and concentration are likely to cause more community upheaval and deterioration. Home ownership is also one of the most common means of accumulating wealth in the United States, meaning more financial insecurity for millions of Americans in the short and long term.

Which people and communities have been the most affected by foreclosures? What have been the ramifications for both those who have lost their homes and the localities that have seen the highest rates of home loss?
Have the losses in wealth caused by home foreclosures been allocated differently across different groups?
Have housing policies aimed at reducing home foreclosures been successful? Who has benefited the most?

Job loss is a major source of stress, and it has been linked to a variety of health effects, including an increased risk of heart attack and stroke, diabetes, arthritis, and psychiatric issues, as well as increased melancholy, anxiety, and sleep loss.

What kinds of health and mental-health changes can be ascribed to the Great Recession’s economic uncertainty and its aftermath?
Has there been a psychological shift in the general public’s aspirations, optimism for the future, and expectations for performance and upward mobility, particularly among the young?
What are the health ramifications in neighborhoods that have been impacted especially hard by the recession?
What are the anticipated ramifications of health-care and mental-health service cuts?

As the recession has set in, the number of economic migrants crossing the Mexican border into the United States has dramatically decreased, and internal migration patterns may have transformed as typical employment possibilities for migrants have decreased.

What are the current trends in immigration and internal migration? What will the ramifications be for immigrant communities?
What has been the impact of the collapse of the building industry on internal migration? Is there a link between changes in other industries and changes in internal migration?
How has extended economic suffering and uncertainty influenced Americans’ attitudes toward immigrants, immigration, and the immigration debate?
Are the lasting consequences of the recession affecting return migration patterns?

The official poverty rate rose from 13.2% in 2008 to 14.3% in 2009, with roughly 4 million more people living in poverty than the previous year. Since 1969, nearly every recession has resulted in considerable rises in poverty rates, with the consequences disproportionately affecting children.

What impact has the recession had on the income and wealth of people at various levels of the income distribution? Which individuals and groups have experienced the most transformation? Which assets (for example, retirement assets, property, and investments) have been most sensitive to the downturn if diverse vehicles for wealth generation have been disproportionately impacted?
Has the rate of poverty changed, and who is more likely to slip into or stay in poverty?
Is the greater concentration of incomes at the top of the income distribution a result of the recession?
Has the gradual increase in economic inequality that has marked the United States since the 1970s been aggravated, reduced, or remained unchanged?

A lengthy period of high unemployment, typified by historically high long-term unemployment rates, is expected to have far-reaching implications for the operation of the US labor market, as well as the lives of the unemployed, their families and communities, and the institutions that support them.

How bad are the ramifications of long-term unemployment? Who are the people who are most affected? What policies and programs work best to re-employ long-term unemployed people?
Is the size of the recession a sign of a massive reorganization of the US labor market? To what extent are structural mismatches between skill demand and supply, rather than weak demand, the causes of long-term unemployment?
What geographical areas and localities have the highest levels of unemployment, and why? What are their chances of getting back on their feet?

During the Great Recession, American politics was extremely turbulent, with rising populist fury directed at incumbents blamed for the crisis, significant electoral swings, and new forms of political organizing and fundraising.

In the aftermath of the recession, how are political attitudes, party affiliation, and political involvement changing?
What role do business and government play in producing the problem and resolving it, according to Americans?

State and municipal pension liabilities are anticipated to be close to $4 trillion, while private pension account balances are down approximately $800 billion from pre-recession levels, notwithstanding the stock market recovery.

What effect do pension losses have on pensioners’ projected retirement income? Which groups have been hurt the hardest?
What impact does the loss of pensions and jobs have on older Americans’ retirement decisions? Is there a shift in the distribution of retirement age based on income or education?

Approximately 46% of the 14.6 million unemployed people have been jobless for 27 weeks or longer, and 31% have been jobless for 52 weeks or longer.

How well did the social safety net in the United States perform during the recession and the subsequent period of high unemployment? How has the recession affected the need for emergency and safety-net services? How well have different programs (such as TANF, SSI, and SNAP) responded to increased demand?
Have community nonprofits been able to address any gaps that exist? Is it possible that the impact of the recession on such NGOs has reduced their ability to respond to rising need?
In a high-unemployment environment, what happens to welfare claimants whose time-limited benefits expire?
What was the American Recovery and Reinvestment Act’s impact? What will happen to state welfare programs now that the ARRA is no longer in effect?

What impact did the United States’ economic collapse have on the global economy in 2008?

The Great Recession was a worldwide economic crisis that wreaked havoc on global financial markets, as well as the banking and real estate sectors. The crisis resulted in a rise in house mortgage foreclosures around the world, costing millions of individuals their life savings, jobs, and homes. It is often regarded as the longest period of economic deterioration since the 1930s Great Depression. Although its impacts were felt all across the world, the Great Recession was most noticeable in the United States and Western Europe, where it began as a result of the subprime mortgage crisis.

What happened to the economy after 2008?

Many conservatives believe that our economy can only thrive if the federal government stays out of the way. Many progressives argue that in our free market system, the government must intervene at times to defend the public welfare and ensure broad-based economic growth. Today’s politics are defined by this discussion.

Americans of all political stripes should agree, however, that between 2008 and 2010, swift and decisive government action was required to avoid a second Great Depression and to aid our economy’s recovery from the biggest recession since the 1930s. After all, the evidence shows that between 2008 and 2010, three acts of Congress signed by two presidents led to the conclusion of the Great Recession of 20072009 and the ensuing economic recovery. Specifically:

The Troubled Asset Relief Program (TARP) of 2008 saved our financial system from near-certain collapse, sparing the United States’ financial system from tragedy.
The American Recovery and Reinvestment Act of 2009 averted a second Great Depression and ushered in a new era of economic development.
By lowering the payroll tax and extending prolonged unemployment insurance benefits, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 bolstered the economy’s fragile recovery.

The top ten reasons why these three major government interventions in the economy were effective will be discussed in this column. But first, let’s go through why such government intervention was required in the first place.

Do you recall the circumstances in 2008? Our economy, job market, and Wall Street were all on the verge of collapsing. Between then and today, there was a strong economic contraction accompanied by large job losses and steep stock market losses, which was followed by slow, uneven, but nonetheless steady economic growth and labor and financial market recoveries. Federal government actions played a significant role in ensuring that the deep dive was not prolonged and that the recovery occurred sooner than it would have otherwise. The job market, the economy, and the financial markets are all showing signs of improvement. This is a tremendous improvement over the condition in 2008.

The Troubled Asset Relief Program of 2008, the American Recovery and Reinvestment Act of 2009, and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 all contributed to the United States’ economic recovery. These three moves happened at a critical juncture in the economy’s development, when the economy was on the verge of significant damage unless policymakers took decisive, targeted, and swift action.

The Troubled Asset Relief Program (TARP) was established in October 2008 to allow the federal government to utilize $700 billion to help the banking system recover. During the last months of 2008, much of that money was spent infusing capital into failing banks, ensuring that our financial system would not collapse. In February 2009, the American Recovery and Reinvestment Act was signed into law, enacting a package of tax cuts and expenditure initiatives totaling $787 billion that would last almost two years, through the end of 2010. The Recovery Act provided additional unemployment insurance and Social Security benefits almost immediately, but infrastructure funding did not begin until the summer of 2009. As the Recovery Act’s benefits expired in December 2010, Congress enacted fresh payroll tax cuts and provided extended unemployment insurance benefits.

The result: After each measure was passed, financial markets, the economy, and the labor market began to improve fast, and money began to flow into critical ailing markets. These three policy measures did exactly what they were supposed to do: policymakers intervened to prevent the economy from deteriorating.

To be true, if these policy initiatives had provided more bang for their money, they would have been more effective and efficient. More assistance for distressed homeowners may have been included in the Troubled Asset Relief Program. More infrastructure money might have been included in the Recovery Act, and payroll tax cuts and prolonged unemployment insurance benefits should have been separated from needless tax cuts for the wealthy. However, conservative hostility to more effective and efficient policy interventions made none of this additional assistance for our economy and workers conceivable.

Nonetheless, the Troubled Asset Relief Program averted the financial system’s collapse. While there are reasonable concerns about the program’s design, whether the benefits were distributed equally, and if the monies were spent as efficiently as possible in the long term, there’s little doubt that it benefited the economy. A new Great Depression was averted thanks to the Recovery Act. The payroll tax cuts and prolonged unemployment insurance benefits are still helping to boost the economy today.

Starting with the Troubled Asset Relief Program, the Recovery Act, and the most recent payroll tax cuts and extended unemployment insurance benefits, here’s a review of the 10 ways recent economic and financial data prove that each of these three policy initiatives succeeded as intended.

Loan tightening eased with the introduction of the Troubled Asset Relief Program

In the fourth quarter of 2008, a net high of 83.6 percent of senior loan officers said they were tightening lending conditions for commercial and industrial loans, up from 19.2 percent in the fourth quarter of 2007. Throughout 2009, this ratio decreased steadily. The senior loan officer ratio is an oblique but informative indicator of how simple or difficult it is for firms and individuals to obtain a bank loan.

Similarly, in the fourth quarter of 2008, a net 69.2 percent of senior loan officers said they were tightening prime mortgage criteria, up from 40.8 percent in December 2007, before declining to 24.1 percent in the fourth quarter of 2009. After the Troubled Asset Relief Program stabilized the US financial sector, banks began to relax lending criteria. Following TARP, the business and mortgage credit markets became less tight.

Interest rates ease shortly after the Troubled Asset Relief Program is enacted

The risk premium, or the difference between the interest rate on risk-free U.S. Treasury bonds and the interest rate on mortgages, peaked at 2.2 percent in December 2010, up from 1.5 percent when the Great Recession began in December 2007. After money from the Troubled Asset Relief Program came into credit markets, the gap narrowed to 1.6 percent by January 2009. During normal economic times, this risk premium is normally approximately 1%.

Corporate bond risk premiums rose from 0.9 percent in December 2007 to 1.9 percent in December 2008, before decreasing to 1.6 percent in January 2009. The risk premium rose at first as lenders became concerned about the health of other banks, then declined as the Troubled Asset Relief Program stepped in to help struggling institutions. Because the program’s effectiveness reduced financial market risk, homeowners and businesses had to pay less for their loans.

The specter for deflation disappeared after the passage of the Troubled Asset Relief Program and the Recovery Act

Falling inflationary expectations have the potential to lead to deflation, or a downward spiral in prices. Deflation exacerbates a recession by causing firms and consumers to postpone big purchases in the hope of lower costs. In the fall of 2008 and winter of 2009, the United States’ economy was threatened by deflation; however, the adoption of the Troubled Asset Relief Program and the Recovery Act put people’s minds at ease.

Based on the difference between inflation-protected and noninflation-protected U.S. Treasury bonds, the predicted inflation rate for the next five years was -0.24 percent in December 2008, down from 2.2 percent in December 2007, indicating that deflation was a real concern among investors. The difference between Treasury Inflation Protected Securities and Treasury bonds of the same maturity is what determines the predicted inflation rate for that particular maturityin this case, five years. By May 2009, inflation predictions had surpassed 1% once more, and by December 2009, they had risen to 1.9 percent. Expected price rises of roughly 2% will encourage businesses to invest more and consumers to spend more than they would otherwise, while lesser price increases will cause them to hold off on their purchases.

Economic growth prospects brightened with the passage of the Recovery Act

Expectations for future economic growth are important for actual growth because businesses will invest more, banks will lend more, and consumers would spend more than they would otherwise if they believe the economy will improve more quickly. The nonpartisan Congressional Budget Office raised its growth forecasts for 2010the first full year following the Recovery Act’s enactmentfrom 1.5 percent to 2.9 percent in March 2009. And, sure enough, economic activity accelerated.

Three of the four quarters of 2008 saw the economy contract, and annual inflation-adjusted GDP growth in the first quarter of 2009 was -6.7 percent. However, once the Recovery Act was signed into law in the second quarter of 2009, our GDP only shrank by 0.7 percent in that quarter as government spending increased. The economy then increased by 1.7 percent and 3.8 percent in the third and fourth quarters of 2009, owing in large part to the tax cuts and expenditure measures approved under the Recovery Act starting to trickle into people’s and businesses’ pockets.

Job losses quickly abated due to Recovery Act spending

Job losses fell by 82.3 percent in the final three months of 2009, from an average of 780,000 per month in the first three months of 2009, when the law was passed, to 138,000 per month in the final three months of 2009. During the same time period, employment losses in the private sector fell by 83.2 percent, from 784,000 to 131,000 on average. The first quarter of 2009 was a clear turning point in the labor market, with the steepest employment losses of the Great Recession.

Personal disposable incomes started to rise again with help from the Recovery Act

People lost jobs in droves from the middle of 2008 to the first quarter of 2009, resulting in a drop in personal disposable after-tax income. Higher unemployment insurance benefits, bigger Social Security payments, and lower personal taxes, all of which were part of the Recovery Act, boosted personal disposable earnings in the second quarter of 2009. This provided immediate assistance to families in need.

Families ended up with more money in their pockets as a result of the new law’s immediate expenditure, despite job losses continuing at the same time. However, other Recovery Act provisions that took a bit longer to promote consumer spending aided in improving employment prospects by putting more money in people’s pockets.

Industrial production turned around with infrastructure spending spurred by the Recovery Act

From December 2007 to June 2009, industrial productionthe output of manufacturing and utilitiesdeclined steadily. When infrastructure expenditure from the Recovery Act began to pour into the economy in July 2009, industrial production began to grow again. After six months of sustained growth, industrial production was 3.7 percent higher in December 2009 than in June 2009.

After-tax income grew more quickly following the payroll tax cut

In the first quarter of 2011, when the payroll tax cut and an extension of extended unemployment insurance benefits were granted, after-tax income increased by 1.3 percent, the quickest rate of growth since the second quarter of 2010. As the labor market continued to add new positions at a modest pace, the payroll tax cut put more money in people’s pockets. The new funds bolstered an economy that was still struggling to establish its feet, assisting in the expansion of jobs.

Job growth accelerated with the payroll tax cut

Indeed, during the first three months of 2011, the labor market added an average of 192,000 jobs each month, up from 154,000 jobs in the previous three months. The payroll tax cut gave a sluggish labor market some more impetus.

Household debt burdens fell more quickly with the payroll tax cut

Households had more money in their pockets, and they used some of it to pay down their crushing debts. In the first quarter of 2011, the ratio of total household debt to after-tax income declined 2.5 percentage points, more than twice as fast as in the fourth quarter of 2010 and quicker than in any other quarter of 2010.

These ten reasons why the federal government’s rapid and decisive action changed an impending second Great Depression into the difficult but steady economic recovery we are witnessing today are based on credible economic statistics. There is plenty of room for argument regarding the amount to which the government should be involved in the day-to-day operations of the economy, but there is no reason to doubt why our economy isn’t locked in a long-term depression like to the Great Depression of the 1930s. In this situation, well-intentioned government measures did exactly what they were designed to do.

Endnotes

The net percentage is the difference between the share of loan officers who say lending standards are tightening and the share who say lending standards are loosening. A positive number indicates that more loan officers tightened lending criteria than loosened them, whereas a negative number indicates that more loan officers softened loan standards. The Federal Reserve Board of Governors, Board of Governors of the Federal Reserve System, Board of Governors of the Federal Reserve System, Board of Governor “Senior Loan Officer Opinion Survey on Bank Lending Practices,” Federal Reserve Board Docs, http://www.federalreserve.gov/boarddocs/snloansurvey/201205/fullreport.pdf.

Calculations are based on the following: “http://www.federalreserve.gov/releases/H15/, “H.15 ReleaseSelected Interest Rates.” The interest rates on conventional mortgages are shown below. Bond rates are for corporate bonds with a AAA rating.

The interest rate differential between nominal five-year US Treasury bonds and inflation-indexed five-year Treasury bonds is known as inflation expectations. Similar tendencies can be seen when comparing Treasury bonds of various maturities. Calculations are based on the following: “H.15 Interest RatesSelected Rates.”

New growth data for 2008 and 2009 was added by the Congressional Budget Office, indicating that the recession was worse than previously anticipated. Congressional Budget Office, “Budget and Economic Outlook” (2009); Congressional Budget Office, “A Preliminary Analysis of the President’s Budget and an Update on CBO’s Budget and Economic Outlook” (2009); Congressional Budget Office, “A Preliminary Analysis of the President’s Budget and an Update on CBO’s Budget and Economic Outlook” (2009). (2009). For 2010, the real inflation-adjusted economic growth rate was 3%. National Income and Product Accounts, Bureau of Economic Analysis (Department of Commerce, 2012). The brighter forecast for 2010 helped to offset a recession that was worse than expected. The CBO lowered the 2009 growth rate from -2.2 percent in January to -3 percent in March. However, the CBO forecasted a -1.5 percent growth rate from December 2008 to December 2009 in both January and March 2009. If the economy is predicted to enter a worse recession and then recover more swiftly in 2009, the changes from December to December can stay the same, even if total year growth rates fall. That is, the CBO predicted that the Recovery Act would add quickly to growth in the second half of 2009, offsetting a higher forecast fall in the first half. However, there are no quarterly growth predictions provided.

National Income and Product Accounts of the Bureau of Economic Analysis were used to compile this data.

Calculations based on Current Employment Statistics from the Bureau of Labor Statistics (Department of Labor, 2011). Because monthly job changes are rather unpredictable, the bullet point shows three-month averages. However, monthly job changes follow the same pattern as quarterly averages.

Calculations based on Current Employment Statistics from the Bureau of Labor Statistics.

Lower taxes and other forms of social spending had a greater impact on rising personal disposable incomes in the second quarter of 2009 than in the following quarters. In the following quarters, neither taxes nor other forms of social spending decreased. Instead, taxes remained low, and social spending remained high, with the exception of Social Security, health care, and unemployment insurance. Throughout the rest of 2009, as more people retired and claimed unemployment insurance benefits, Social Security and unemployment insurance payouts grew. Calculations based on National Income and Product Accounts from the Bureau of Economic Analysis.

Calculations are based on the following: “http://www.federalreserve.gov/releases/g17/default.htm, “Industrial Production and Capacity Utilization G-17.”

Calculations based on National Income and Product Accounts from the Bureau of Economic Analysis.

In 2008, how much did global GDP fall?

It took five years for the economy to recover. The UK economy shrank by more than 6% between the first quarter of 2008 and the second quarter of 2009, and it took five years to recover to its pre-recession size. According to the most recent figures, the UK economy is now 11% larger than it was before the recession.

What is the significance of GDP?

GDP is significant because it provides information on the size and performance of an economy. The pace of increase in real GDP is frequently used as a gauge of the economy’s overall health. An increase in real GDP is viewed as a sign that the economy is performing well in general.