Comparing GDP Growth by Year
When comparing growth by year, it’s also helpful to look at the unemployment rate by year and inflation rate by year. That tells you where you are in the business cycle. Negative growth signals the contraction phase. A recession and high unemployment are likely to follow. High growth must occur before unemployment recedes. That begins the expansion phase. For example, there was lots of expansion between 2010 and 2020. The Fed raised interest rates and the stock market hit new highs. However, then the U.S. hit a recession in February 2020. This led to high unemployment rates and a large contraction with negative GDP. As the U.S. recovered, inflation began to rise. These three factors of economic health are all intertwined.
Is Fast GDP Growth Good for the Economy?
Faster growth isn’t always better growth. It must be sustainable. Economists often agree that the ideal GDP growth rate is between 2% and 3%. Growth needs to be at 3% to maintain a natural rate of unemployment. But you don’t want growth to be too fast. That will create a bubble, which then leads to a recession when it bursts.
GDP Growth Throughout History
The biggest annual drop in GDP growth in U.S. history occurred in 1932. The economy contracted -12.9% during the worst year of the Great Depression. The worst deflation occurred that same year. Prices fell 10.3%. And by 1933, the unemployment rate was the highest in history at 24.9%. The worst inflation in modern times was right after World War II. Prices rose 18.1% in 1946. That happened during the expansion phase of the business cycle.
GDP Growth, Inflation, and Unemployment by Year
The table below shows how GDP, inflation, and unemployment rates have changed each year since 1929. GDP is the annual rate and inflation is for December of that year and is the year-over-year rate. The unemployment rate is as of December that year. Unemployment rates for the years 1929 through 1947 were calculated from a different BLS source as current BLS data only goes back to 1948. You’ll also find notes for events that happened each year, or which phase of the business cycle the economy was in at that year.
