U-Shaped vs. V-Shaped Recoveries: Some Benchmarks

To establish some benchmarks, one needs to examine the ten prior post-World War II recessions. In those recessions, the mean rebound in real GDP 1 year after the bottom was reached was 4.9%. The median figure was 5.4%.

If one uses a growth rate of more than 1 standard deviation below the mean figure to identify U-shaped recoveries, one can categorize the ten previous recoveries as follows:

U-Shaped Recoveries:
1981-82
1990-91
2001

V-Shaped Recoveries:
1948-49
1953-54
1957-58
1960-61
1969-70
1973-75
1980

For U-shaped recoveries, the mean 1-year growth rate from the recession's bottom was 2.1%. The mean 2-year annualized growth rate was 3.5%. In U-shaped recoveries, the growth rate tended to accelerate after the initial year of growth.



For V-shaped recoveries, the mean 1-year growth rate from the recession's trough was 6.1%. The mean 2-year annualized growth rate, even taking into consideration the rapid onset of the 1981-82 recession, was 5.1%. Excluding that recession, which arguably distorted the 2-year annualized figure, the 1- and 2-year growth rates came to 6.3% and 5.8% respectively. In V-shaped recoveries, the initial year of growth was typically strongest, with the second year seeing robust but somewhat more restrained growth.



The overall growth trajectories for U-shaped recoveries and V-shaped recoveries (all V-shaped ones and those excluding 1980) follows:



In sum, one can reach several rough conclusions:

• During U-shaped recoveries, annualized 1-year and 2-year real GDP growth from the bottom of the preceding recession is less robust than comparable growth during V-shaped recoveries.

• During U-shaped recoveries, real growth tends to accelerate after the initial year of recovery.

• During V-shaped recoveries, real growth typically decelerates following the burst of growth in the initial year, but remains robust during the second year following the economic trough.

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