Overview of the US Economy

By Despina Chouliara

The Great Recession began in December 2007 and ended in June 2009, making it the longest recession in the U.S. since the Great Depression. The crisis led to steep reductions in GDP, gross private investment, and personal consumption. Consumer spending experienced the most severe decline since World War II, and nearly 8.7 million Americans lost jobs. Households cut spending, shed outstanding debt, and increased their rate of personal savings in response to reductions in income, wealth, confidence, and credit access.

The American Predatory Lending team collected data from Moody’s Analytics on key national economic indexes. Using this data, we created two visualizations that capture the dramatic impact of the housing market collapse on the U.S. economy

After experiencing a mild recession at the start of the millennium due to the collapse of the dot-com bubble, the U.S. economy performed remarkably well up until 2008. Although the National Bureau of Economic Research dates the official start of the Great Recession in December 2007, the collapse of Lehman Brothers in September 2008 accelerated the decline in U.S. economic activity. All major economic indices, with the exception of government spending, reached their lowest levels in 2009, with real GDP falling 4.3 percent from its peak in the fourth quarter of 2007 to its trough in the second quarter of 2009 – the largest decline since the 1930s. To help offset the decline in aggregate demand, the U.S. government increased spending through fiscal stimulus (Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009) and automatic stabilizers (unemployment insurance, welfare, etc.).

The above graph demonstrates that the unemployment rate is a lagging economic indicator. Despite GDP beginning to decline at the end of 2007, the unemployment rate didn’t peak until 2010.

The Federal Reserve initially responded to the economic turmoil by utilizing its traditional tool of lowering the federal funds rate, the rate at which banks borrow and lend excess reserves from one another on an overnight basis. The recorded average fed funds rate went from 5.25 percent in 2007Q2 to 2.09 percent in 2008Q2, before bottoming out at 0.18 in 2009Q1. Eventually, the Fed resorted to non-traditional tools, such as large-scale asset purchases – also known as Quantitative Easing – but as the above graph demonstrates, interest rates remained close to zero until 2015.