WHAT IS 'U-Shaped Recovery'

A U-Shaped Recovery is a type of economic recession and recovery that resembles a U shape when charted. A U-Shaped Recovery represents the shape of the chart of certain economic measures, such as employment, GDP and industrial output. It is also charted when the economy experiences a gradual decline in these metrics followed by a gradual rise back to its previous peak.

BREAKING DOWN 'U-Shaped Recovery'

A U-Shaped Recovery describes a type of economic recession and recovery that charts a U shape, established when certain metrics, such as employment, GDP and industrial input decline gradually decline and then gradually rise back over time, typically over a period of 12 to 24 months.

Simon Johnson, former chief economist for the International Monetary Fund, described a U-shaped recession like a bathtub in an interview with PBS in 2009. “You go in. You stay in. The sides are slippery. You know, maybe there’s some bumpy stuff in the bottom, but you don’t come out of the bathtub for a long time.”

Common Recession Shapes

Recession shapes are shorthand concepts used by economists to characterize various types of recessions. Any number of recession and recovery types may conceivably be charted, although the most common shapes include U-shaped, V-shaped, W-shaped, and L-shaped.

* V-shaped recessions begin with a steep fall, but trough and recover quickly. This type of recession tends to be considered a best-case scenario.
* W-shaped recessions begin like V-shaped recessions, but turn down again after false signs of recovery are exhibited. Also known as double-dip recessions,  because the economy drops twice prior to full recovery.
* L-shaped recessions are worst-case scenarios, describing recessions that fall quickly but fail to recover.

Examples of U-Shaped Recessions

Of the U.S. recessions charted since 1945, approximately half have been described by economists as U-shaped, including the 1973-5 recession and the 1981-82 recession.

One of the most notable U-shaped recessions in U.S. History was the 1973-75 recession. The economy began to shrink in early 1973 and continued to decline or show only slight growth over the next two years, with the GDP dipping to 3.2 percent at it deepest point before finally recovering in 1975. Contributing factors to this recession included the 1973 oil crisis and increased oil prices as well as the 1973-74 stock market crash, one of the worst market downturns in modern history, which affected all the major stock markets in the world.

The recession of 1981-82, which saw a peak unemployment rate of 10.8 percent and GDP trough of 2.7 percent, was largely attributed to tight monetary policies implemented in the U.S. to control inflation carried over from the 1979 energy crisis.

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