	Introduction

According to the National Bureau of Economic Research (NBER), the U.S. economy was in a recession for 18 months from December 2007 to June 2009. It was the longest and deepest recession of the post-World War II era. It is unlikely that all of those indicators will begin declining or rising simultaneously. In the recent episode, gross domestic product (GDP) began to fall (in the fourth quarter of 2007) before employment (in January 2008), and both deteriorated significantly in the third quarter of 2008. When considering depth, the recent recession can be separated into two distinct phases. During the first phase, which lasted for the first two quarters of 2008, the recession was not deep as measured by the change in GDP or unemployment. After a slight further decline in the second quarter, the economy returned to expansion in the third quarter of 2009. Most of the decline occurred from the third quarter of 2008 to the first quarter of 2009. Economists often attribute the unusual length and depth of the 1973 and 1981 recessions in part to the Federal Reserve's decision to keep interest rates high. This dynamic has not been important in the recent recession, as the federal funds rate's recent peak was 5.25% and was reduced before the recession had begun, eventually falling to almost zero. Since then, declines in those prices temporarily led to deflation (falling prices) at the end of 2008, with very low inflation since. Unsurprisingly, the recessions with the deepest declines in output also featured the largest increases in unemployment. The previous two recessions, in 1991 and 2001, were mild and brief as measured by the decline in GDP, and had some of the smallest increases in unemployment in the post-war period. Less typically, subsequent employment growth has been weak. Consumption and Investment in Recessions

The recent recession has also featured the largest decrease in consumption and private fixed investment spending of any post-war recession. The percentage decline in residential investment was much larger in the recent recession—beginning in the second quarter of 2006, residential investment fell by more than an annualized rate of 10% for thirteen straight quarters, while business investment fell by more than 10% in only two quarters. The recessions of 1973 and the early 1980s are remembered for their oil shocks, and this pattern is not uncommon. A widespread recession is not historically unusual. Recessions and the Financial Sector

A primary reason that the recent recession was longer and deeper than normal is the severity of the financial downturn that began in August 2007 and worsened dramatically in September 2008. Since then, financial conditions have improved but have not completely returned to normal. Comparisons Between the Recent Recession and the Great Depression

Some commentators have suggested that the financial crisis of the recent recession makes the Great Depression a more relevant comparison than the other post-war recessions. Among the most important errors were the Fed's failure to counteract the contraction in the money supply, which caused overall prices to fall a cumulative 25%, and bank runs, which caused thousands of banks to fail. By contrast, policymakers have responded aggressively and unconventionally to attempt to contain the current crisis. The Fed has reduced short-term interest rates to nearly zero. As deep as the recent recession was, it was mild compared with the first contraction of the Great Depression, as shown in Table 3 . The changes in GDP, prices, and unemployment in the recent recession were much closer to those experienced in other post-war recessions than the Great Depression.
According to the National Bureau of Economic Research (NBER), the U.S. economy was in a recession for 18 months from December 2007 to June 2009. It was the longest and deepest recession of the post-World War II era. The recession can be separated into two distinct phases. During the first phase, which lasted for the first half of 2008, the recession was not deep as measured by the decline in gross domestic product (GDP) or the rise in unemployment. It then deepened from the third quarter of 2008 to the first quarter of 2009. The economy continued to contract slightly in the second quarter of 2009, before returning to expansion in the third quarter. The recent recession features the largest decline in output, consumption, and investment, and the largest increase in unemployment, of any post-war recession.
Previously, the longest and deepest of the post-war recessions were those beginning in 1973 and 1981. Both of those recessions took place in a context of high inflation that made the Federal Reserve (Fed) hesitant to aggressively reduce interest rates to stimulate economic activity. The Fed has not shown a similar reluctance in the recent recession, bringing short-term rates down to almost zero. Although inflation exceeded the Fed's "comfort zone" in 2007 and 2008, it was not nearly as high as it was in the 1970s or 1980s recessions. The economy briefly experienced deflation (falling prices) at the end of 2008, and inflation has generally remained very low since. Deflation may be a bigger threat to the economy in the near term, although some economists are fearful that the Fed's actions will cause inflationary problems once the economy returns to full employment.
Both the 1973 and 1981 recessions also featured large spikes in oil prices near the beginning of the recession—as did the recent one. Disruptions to oil markets and recessions have gone hand in hand throughout the post-war period.
The previous two recessions (beginning in 1991 and 2001) were unusually mild and brief, but subsequently featured long "jobless recoveries" where growth was sluggish and unemployment continued to rise. The recent recession did not feature a jobless recovery longer than the norm, but employment growth has been weak in 2010.
A decline in residential investment (house building) during a recession is not unusual, and it is not uncommon for residential investment to decline more sharply than business investment and to begin declining before the recession. The recent contraction in residential investment was unusually severe, however, as indicated by the atypical decline in national house prices.
One unique characteristic of the recent recession was the severe disruption to financial markets. Financial conditions began to deteriorate in August 2007, but became more severe in September 2008. While financial downturns commonly accompany economic downturns, financial markets have continued to function smoothly in previous recessions. This difference has led some commentators to instead compare the recent recession to the Great Depression. While the onset of both crises bear some similarities, the effects on the broader economy have little in common. In the first contraction of the Great Depression, lasting from 1929 to 1933, GDP fell by almost 27%, prices fell by more than 25%, and unemployment rose from 3.2% to 25.2%. The changes in GDP, prices, and unemployment in the recent recession were much closer to those experienced in other post-war recessions than the Great Depression. Most economists blame the severity of the Great Depression on policy errors—notably, the decision to allow the money supply to contract and thousands of banks to fail. By contrast, in the recent recession policymakers have aggressively intervened to stimulate the economy and provide direct assistance to the financial sector.