Early 1980s recession in the United States

, a measure of inflation, 1973–1992 Beginning in 1978, inflation began to intensify, reaching double-digit levels in 1979. The consumer price index rose considerably between 1978 and 1980. These increases were largely attributed to the oil price shocks of 1979 and 1980, although the core consumer price index which excludes energy and food also posted large increases. Productivity, real gross national product, and personal income remained essentially unchanged during this period, while inflation continued to rise, a phenomenon known as stagflation. In order to cooperate with these new priorities, the federal funds rate was lowered considerably from its April peak. ==1980==

A recession occurred beginning in January 1980. The official end of the recession was established as of July 1980. As interest rates dropped beginning in May, payrolls turned positive. Unemployment among auto workers rose from a low of 4.8% in 1979 to a record high of 24.7%, then fell to 17.4% by the end of the year. Construction unemployment rose to 16.3%, and also moderated near the end of the year. During the final quarter of 1980, there were doubts that the economy was in recovery, and instead was experiencing a temporary respite. These concerns were fueled by poor performance in housing and auto sales in the final months of 1980, as well as a second wave of rising interest rates and stagnant unemployment rate. ==1981–1982==

gives a televised address from the Oval Office outlining his plan for tax reductions in July 1981. As 1981 began, the Federal Reserve reported that there would be little or no economic growth in 1981, as interest rates were to continue rising in an attempt to reduce inflation. After failing to gain traction during the weak and brief recovery from the 1980 downturn, weakness in manufacturing and housing caused by rising interest rates began to have an expanded effect on related sectors beginning in mid-1981. The total increase in unemployment was 3.6%, which was less than the 1973–75 recession increase of 3.8%, yet still higher than the 2.9% average. Because the recession began with already elevated levels of unemployment, the increase easily pushed it higher than any other post-war recession. As the recession deepened in 1982, Reagan's approval rating also dropped. As a result, during the 1982 midterm elections, Republican gains made in the House of Representatives during the 1980 election were reversed. However, control of the Senate was retained by the Republicans. ==Recovery==

In July 1983, the official end of the recession was announced as November 1982, with the employment trough occurring in December. At the time of the announcement, output and sales had already met or exceeded levels achieved before the recession began. Through December 1983, nonfarm payrolls rose by 2.9 million and the unemployment rate fell by 2.5%. The auto industry had posted losses of $187 million in the third quarter of 1982, which turned into a gain of $1.2 billion during the same period in 1983. To prevent a new surge of inflation, interest and mortgage rates remained abnormally high throughout 1983, delaying a recovery in construction and housing. As the third year of recovery drew to a close in 1985, payroll employment had grown by 10 million since the end of the recession. Growth continued through July 1990, creating what was at the time the longest peacetime economic expansion in U.S. history. ==Impact==

Although the economy recovered in 1983, the residual effects of high inflation and high interest rates had a profound impact on the savings and loans industry. Savings and loan associations were limited by interest rate ceilings. As a result of rising interest rates, many savings and loan institutions experienced frequent account withdrawals, as depositors moved their money to higher-earning accounts offered by commercial banks. The already struggling savings and loans industry posted large losses in 1981 and 1982. High mortgage rates eroded the value of mortgage-backed loans, the primary asset of savings and loan associations. These fixed-rate loans were sold at a loss in order to balance withdrawals. This asset liability mismatch was identified as the primary cause of the savings and loan crisis. ==Long-term effects==

Although the U.S. macroeconomy recovered during the 1983-1990 economic expansion period, the early-1980s recession cast a long shadow over many parts of the United States, especially those reliant on heavy industry. For example, heavily industrialized Lake County, Indiana (home to major manufacturing cities such as Gary, East Chicago, and Hammond), did not recover its 1980 employment level until 1996. And as of 2010, the county's inflation-adjusted output has stubbornly remained 15-20% below its 1978 peak. Other steel-producing regions, such as the south side of Chicago, the Mahoning Valley, Cleveland, and Pittsburgh, had been struggling since the onset of the 1973-75 recession, but it was the early-1980s recession that left deep and lasting damage to local economies. Mining communities in Minnesota's Iron Range, Wisconsin's Driftless Area, eastern Kentucky, and West Virginia were also devastated after years of struggle. Although inflation subsided and interest rates began to decline starting in 1983, the Federal Reserve was still committed to a strong-dollar policy through the mid-1980s. This prevented a recovery in manufacturing by undermining the competitiveness of exports of American manufactured goods (particularly automobiles and steel). It was not until 1985 that the Reagan administration and the Federal Reserve took action to correct this when the U.S. signed the Plaza Accord with France, West Germany, Japan, and the United Kingdom. As the U.S. Dollar depreciated some 50% against these major currencies, this agreement (combined with voluntary export restrictions) did help American exports recover, particularly in the automotive sector: by the early-1990s, the number of vehicles assembled by Japanese automakers in U.S. plants exceeded the number of auto exports from Japan to the U.S., a trend that still continues into the 2010s. However, many of the auto manufacturing plants were set up in states with right-to-work laws, primarily in the South and West. The Rust Belt states, particularly the auto-making states of Ohio, Michigan, and Indiana, did not always reap the full benefits of this change. U.S. manufacturing employment peaked at 19.5 million in June 1979, before sharply declining by 2.8 million to 16.7 million before bottoming out in January 1983. Although 1.2 million manufacturing jobs would be created during the 1983-1990 period, the 1979 peak would never be reached again. The recession heralded a sustained deindustrialisation in the United States that has since accelerated thanks to globalisation and outsourcing. ==References==