World War II (including the lifting of wartime controls): 1941-1947

Economic comparisons between times of war and peace are difficult at best, and the economy during World War II operated under numerous new conditions including unprecedented government spending, price controls, bond campaigns, controls over raw materials, bans on new housing and automobiles, rationing, guaranteed cost-plus profits, subsidized wages plus the draft of 12 million soldiers. Nevertheless, the economy performed strongly in terms of GDP growth and much of the unemployment of the previous decade evaporated during the war effort but at a cost: massive government budget deficits and an unprecedented increase in the national debt.

The War Production Board was formed and charged with organizing the nation’s productive capabilities so that military priorities would be met. This was achieved through the conversion of consumer-products plants for the purpose of filling military contracts. The best example was the Automakers who built tanks and aircraft. The government created the Office of Price Administration which tried to prevent inflation caused by scarce consumer products by rationing consumer items ranging from sugar to gasoline and rents controls. The labor force also began to shift as six million women took jobs in manufacturing and production (most were newly created temporary jobs in munitions or to replace men on military duty).

The end of World War II was followed in the United States by uneasy and contentious conversion back to a peacetime economy. President Truman was faced with a sudden renewal of labor-management conflicts that had lain dormant during the war years, severe shortages in housing and consumer products and widespread dissatisfaction with inflation. Also challenging were a wave of strikes in major industries. In the spring of 1946, a national railway strike crippled all passenger and freight lines for over a month.

Most economic indicators report a tremendous resurgence in economic conditions during this period, which is correct if one only measures economic performance in terms of GDP growth. While GDP growth is very important, the CEPPI indicator contrasts this with other indicators as it also accounts for the tremendous increase in war-related deficit spending, which reduces the CEPPI Index. While it is accurate to report that economic activity increased dramatically and unemployment fell during the war, what is often forgotten is that the United States also tripled its national debt between 1941 and 1946 which would take decades to reduce. For this reason, the CEPPI index averaged Fair for the years 1941-1947.