The 1973–75 Recession

Oil shock & stagflation · 1973–1975 · latest-revision data

NBER recession 1973-12–1975-03 — caught by 5/18 forecast signals

Signal episodes overlapping the window:

Financial conditions (NFCI)	1971-01 → 1975-12	critical
Building permits	1973-05 → 1975-08	critical
Initial jobless claims	1973-08 → 1975-10	critical
Continued claims	1973-11 → 1976-11	critical
CFNAI activity index	1974-09 → 1975-07	critical
Sahm rule	1974-04 → 1976-03	critical
Housing starts	1973-10 → 1975-08	warning
Industrial production	1974-11 → 1976-01	warning
Recession probability (Chauvet–Piger)	1974-01 → 1975-05	warning

Note: latest-revision data — 'caught' counts an episode overlapping the recession start ±24m (broader than the 12m precision window used in /analytics). Add 'asof' for point-in-time data.

The 1973–75 recession was one of the deepest US downturns between the 1930s and 2008 — a collision of a demand boom, a supply shock, and the collapse of price controls. Nixon's 1971 wage-price freeze had bottled inflation artificially; when controls loosened in 1973, prices surged just as the OPEC embargo of October 1973 quadrupled oil prices in three months.

Two stages of decline

NBER analysis splits the episode in two. From November 1973 to autumn 1974 the economy shrank moderately — mostly a supply-constraint story, with gasoline queues and materials shortages throttling output. After October 1974 demand itself collapsed: industrial production, employment, and real income all broke down together, and unemployment raced to 9% by May 1975.

The signal record

Housing indicators warned earliest — starts and permits rolled over in 1973, well before the NBER peak. The yield curve had inverted in 1973, and claims accelerated through 1974. Notably, this is the episode that created the word every forecaster fears: stagflation — prices rising even as output fell, breaking the simple Phillips-curve logic.

Fact: The S&P 500 lost 48% peak-to-trough (Jan 1973 – Oct 1974), its worst decline since the Great Depression. The recession lasted 16 months — the longest post-war contraction until 2007–09 surpassed it at 18.

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