1980’s Recession – How Deep Was It And How Does It Compare to 2010

In the early 1980s the US suffered a recession. In 1980, the gross domestic product measured -0.3%. The following year the GDP grew at 2.5% in 1982 it slipped back to -1.9%. During this period the unemployment rate was rising. However, the good news was interest rates, which were previously sky high, were coming down. From 1983 to 1989 the GDP grew steadily, interest rates fell steadily and the unemployment rate fell as well. In fact, the 1980s were a time of great prosperity, but the decade started, like this decade, in recession. In this article, we will compare the recession of the early 1980s to our most recent recession.

Two Negative Quarters

A recession starts when a country experiences two consecutive quarters of negative growth as measured by the GDP. In the first quarter of 1980 the GDP was -0.3%. Quarter number two of 1980, the GDP measured -7.9%. This indicated a very deep recession in 1980. However, the economy bounced back somewhat finishing the year with the GDP measuring -0.3%.

In the first quarter of 1981, at the time Ronald Reagan was inaugurated president of the United States, the GDP had grown and technically, the country was out of recession. However, by the beginning of 1982, growth had gone into negative territory once again, thus starting a new recession. At that time, the unemployment rate measured 8.6%.

Interest Rates Falling, Unemployment Rising

In 1982, the economy started to grow again. Interest rates which had been high were continuing to fall. However, the unemployment rate continued to rise and by the beginning of 1983 it had peaked at 10.4%. This was the last piece of economic bad news for the decade of the 80s. From that point forward, the economy experienced 28 consecutive quarters of growth. Mortgage rates fell from in the vicinity of 20% down to about 9%. In short, from 1983 through 1989 the US enjoyed one of the strongest economic periods in its history.

2008 Recession

In late 2008, the US economy slipped into a recession. By late 2009, it came back out of this recession. However, the growth experienced coming out of the recession was modest. For instance, in quarters one and two of 2010 the GDP measured 3.7% and 2.4% respectively. In contrast however, the first two quarters in 1983 showed growth of 5.1% and 9.3% respectively.

In 2010, the unemployment rate has held steadily at 9.7%. However, the problem with economic indicators in this period is the fact the unemployment is rising, GDP growth is modest, and interest rates are near an all-time low.

The problem the US experienced in the early 1980s was the interest rates were very high. Very few people could afford to buy houses because of the high mortgage rates. Refinancing was absolutely out of the question. In 2010, we have a different set of problems. Most notably would be the rising national debt and the real estate crisis.

Still, I remember the early 80s and there were a lot of people who thought it was all over back then. Certainly, the economy did suffer through most of the 70s right through until 1983. So, the US has been through tough times before and we have come out smelling like a rose. The point is, things look pretty bleak from the perspective many people have right now, but this is the United States and it is very likely we will come out of this time period smelling like a rose as well.