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The COVID-19 Recession: A Faster Recovery?

May 18, 2023
By: Conor Gowder

The recession brought upon by the COVID-19 pandemic (February 2020 – April 2020) saw an extremely sharp drop in both GDP and employment, followed by a relatively fast return to non-recessionary rates of unemployment. This swift recovery was a substantial contrast to the periods of the Dot Com Recession (March 2001 – November 2001) and Great Recession (December 2007 – June 2009). These previous recessions saw both dips in GDP, followed by gradual rises in unemployment rates over several months or years, with a gradual decrease in unemployment over the coming years.

The above graphic shows quarterly real GDP — GDP adjusted for inflation — and unemployment for each month since January 2000, with major recessionary periods, as defined by NBER, highlighted in grey. This illustrates Okun’s law, which states that there is a negative relationship between unemployment and GDP growth; historically, for every 1% decrease in GDP, there has been around a 2% increase in unemployment. So, during a recession, the unemployment rate can be expected to increase significantly– a trend that becomes clear when visualized.

The National Bureau of Economic Research (NBER) says recessions are periods of a significant decline in economic activity that spread across the economy and span several months. During a recession, gross domestic product (GDP) will typically decline in most months, leading to job losses as businesses cut costs to remain profitable. However, the impact of a recession on employment can vary depending on the sector of the economy. For example, during the Great Recession, the manufacturing sector was particularly hard hit, as businesses closed plants and laid off workers.

A few possible explanations exist for this difference. The COVID-19 pandemic was a much more sudden and severe shock to the economy than the Dot Com or Great Recession, with statewide lockdown orders around the country within a matter of months. The nature of the pandemic also led to a greater emphasis on large stimulus packages, and widespread measures to support impacted businesses and workers. Read more about the approximately $5 trillion in pandemic stimulus money and who received it here.

As a result of the government's response, the economy began to recover more quickly than expected. By the start of 2021, real GDP had already grown past pre-pandemic levels while unemployment started to decline.

unemployment, gdp