Looking Back: The Worst Business Cycle Ever For U.S. Manufacturing

The 2007-2019 business cycle is now in the books, and even before the pandemic it was objectively terrible for domestic manufacturing. What do we have to do to dig ourselves out, and can policy help?

Economists usually measure business cycles from peak to peak. While the arbiters of business cycles—Business Cycle Dating Committee of the National Bureau of Economic Research—just identified February 2020 as the monthly peak, the peak year is clearly 2019. The previous peak was 2007, just before the financial crisis.

Unfortunately, domestic manufacturers basically staggered through the past 12 years, as measured by output, productivity, and employment. Let’s start with output first. As measured by the Federal Reserve’s industrial production index, manufacturing output fell by 1.3% from 2007 to 2019. To put this in perspective, that’s a worse performance than the Great Depression of the 1930s, when factory output actually rose from the 1929 peak to the next peak in 1937.

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