Overview of the history of American business cycle might be made on the basis of NBER data for the monthly business cycle chronology as shown in table.3.1. There presented data about the bottom and thirty-three peaks of business cycles, that passed the United States economy from 1854. There also shown duration of each reduction and expansion periods in months.
The great depression and world war II
I won't review period1854-1914.in detail. I note only that the period of the most rapid economic growth in the United States was the period between the Civil war (1861-1865 ) and the First world war (1914-1918 ). as it is shown in table 3.1, during this period, the major problem was the recession. The longest reduce -65 months from October 1873 to March 1879 , happened throughout the world –Depression of 1870 's. In General, during the period from1854-1914.economy’s reduction occupied 338 months, which is approximately equal to the time busy periods of expansion,-382of the month. In contrast, in the period from the end of World War II in 1945 until January 2000 the number of months expansion (554 months), considerably five times more than number of reduction months (96 months).
The most severe contraction in United States history was the great depression of the 1930 's. After a decade of prosperity in the 1920-ies.the combined economic activity reached a peak in August 1929, and two months later, in November, 1929, the stock market collapsed. In period of the peak between 1929 and bottom in 1933, , real GDP fell by almost 30%. During this period, the unemployment rate rose from 3 to 25%. To understand how hard was the Great depression, it might be compared on several macro indicators, with the two largest recessions after World War II (1973-1975 and 1981-1982.). In comparison with the 30% drop of real GDP and 25% unemployment rate of Great depression period, during the 1973-1975 recession. Real GDP fell by 3.4%, as well as unemployment rate rose from 4 to 9%; during the recession of 1981-1982. real GDP fell by 2.8%, and the unemployment rate rose from 7 to 11%.
While many perceive the great depression as unified period, actually it is two business cycle, as shown in table. 3.1. The reduction phase of the first cycle lasted forty three months, from august 1929 to march 1933, and has become the most serious downturn in the history of the United States. After the president of the United States in march 1933 became Franklin D. Roosevelt, who began to pursue a policy known as the “New deal”, there were sufficiently strong expansion that lasted for 50 months, from march 1933 until may 1937. By 1937, the GDP almost reached the level of the year 1929, although unemployment remained high 14%. Figure 3.1
(Unemployment remained high, despite the GDP recovery, because since 1929, the number of working age people has grown, while increase in productivity conditioned more slower employment growth than the growth in production.)The second cycle of the great depression began in may 1937, by reduction phase, which lasted more than a year. Despite a new revival, which began in June 1938, in 1939 the unemployment rate is still higher than 17%.
Table3.1.The duration and the turning points of business cycles in the U.S. since1854 (according to the NBER)
The Great Depression ended with the country's entry into World War II. Even before the Japanese attack on Pearl Harbor and the official U.S. entry into the war in December 1941, the economy began to grow as a result of increased weapons production. After the shock of Pearl Harbor, the United States is prepared to conduct total war. The output on government contracts and appeasing greedy military needs of increasing number of guns, planes and ships has led to the fact that the real GDP for the period between 1939 and 1944 almost doubled. The unemployment rate fell sharply, reaching an average of less than 2% of the labor force in 1943-1945. And the lowest value was reached in 1944, when it was 1.2%.