The early 1980s recession was a severe recession in the United States which began in July 1981 and ended in November 1982.The primary cause of the recession was a contractionary monetary policy established by the Federal Reserve System to control high inflation.

Cause of 1980s early recession…

In the wake of the 1973 oil crisis and the 1979 energy crisis, , stagflation began to afflict the economy of the United States. , Unemployment had risen from 5.1% in January 1974 to a high of 9.0% in May 1975. , Although it had gradually declined to 5.6% by May 1979, , unemployment began rising again thereafter. , It jumped sharply to 6.9% in April 1980 and to 7.5% in May 1980. , A mild recession from January to July 1980 kept unemployment high, , but despite economic recovery unemployment remained at historically high levels (about 7.5%) through the end of 1981. , Inflation, , which had averaged 3.2% annually in the post-war period, , had more than doubled after the 1973 oil shock to a 7.7% annual rate. , Inflation reached 9.1% in 1975, , the highest rate since 1947. , Inflation declined to 5.8% the following year, , but then edged higher. , By 1979, , inflation reached a startling 11.3% and in 1980 soared to 13.5%.

Employment conditions deteriorated throughout the year. , The unemployment rate in the U.S. , reached 10.8% in December 1982 ”higher than at any time in post-war era. , Job cutbacks were particularly severe in housing, , steel and automobiles. , By September 1982, , the jobless rate reached 10.8%. , Twelve million people were unemployed, , an increase of 4.2 million people since July 1981. , Unemployment rates for every major group reached post-war highs, , with men age 20 and over particularly hard hit.





For 2008-2009…

The CEO of NuCor Steel was on Squawk Box this morning. , He said actual unemployment is 13-15% if you calculate it the way they did prior to the 80s when they changed it (for obvious political reasons under Reagan/Bush). , If we don’t hit double-digits it’s likely because the stats are not accurate. , The reality is no one knows what is going to happen. , I ask you one simple question to demonstrate the situation we are in: where is the money going to come from to drive growth if fewer people are employed and overall those who are employed (except for the top 5%) are making the same or less, , and borrowing less (because the banks have stopped lending)? What is going to drive growth, , much less enough growth to create jobs?

Statistics lie. , And we all know who uses statistics. , This recession will be like no other simply because of the fraud being committed around the world not just in the financial industry but others (see Satyam). , It started with Enron and it won’t end for another decade or two until all the fraud shakes out. , Keep your money under your mattress because there is no guarantee you’ll ever see it again if you invest it.

Payroll declines will soon match those of the 1981-82 recession, , when U.S. , joblessness last broke 10%. , But a larger workforce and a healthier starting point are softening the blow

By James Cooper

The labor market hasn’t looked this gloomy since the dark days of the 1981-82 recession, , one of the deepest downturns since the 1930s. , At the recent pace of payroll declines, , averaging more than 400, ,000 per month, , job losses will surpass that slump’s 2.8 million drop in employment by February. , What’s more, , that recession lasted 16 months. , The current slump, , which began in December 2007, , is almost certain to last longer. , All this is raising serious questions about how high the unemployment rate will go this time. , After all, , joblessness peaked at 10.8% in the 1981-82 downturn, , and weekly unemployment claims are already at levels not seen since then.

Are we headed for a double-digit jobless rate in 2009? Not unless this recession is deeper than even the most pessimistic forecasts for economic growth. , Using a complex linkage between growth and unemployment developed by economist Arthur Okun in the early 1960s, , economists at UBS (UBS) show that real gross domestic product would have to fall roughly 6% from peak to trough to yield a 10% unemployment rate by the end of 2009. , That would imply a recession twice as deep as the 3% decline in GDP recorded in the 1981-82 downturn.

So why would a recession as steep as the one in 1981-82 result in a lower peak jobless rate in 2009? First of all, , unemployment went into that recession at 7.5%, , compared with 4.7% just before the current downturn. , Productivity growth plays a key role in the relationship between growth and unemployment because it can influence the starting point for joblessness.

An increase in productivity growth over the past decade has enabled the economy to grow faster without igniting inflation. , That allowed Federal Reserve policy to be more accommodative to growth, , letting the jobless rate move lower without triggering inflation worries and tighter policy. , Reflecting that lower starting point, , the UBS economists note that a recession today as deep as the one in 1981-82 would imply a peak jobless rate of about 8.25%.

The rise in unemployment has picked up in recent months as businesses have reacted to the plunge in consumer spending. , Until late summer, , job losses had been mild because companies entered the recession having hired cautiously. , Capital spending and inventory policies had also been conservative. , Now the economy’s weakness has overwhelmed those moderating factors, , forcing steeper cuts.

That means the most severe losses in payrolls will be happening now and in the months ahead as companies slash costs and try to cushion their bottom lines. , Still, , comparisons with the 1981-82 experience must be tempered by the growth of both payrolls and the labor force, , which includes workers with jobs and those looking for jobs. , For example, , payroll losses totaling 2.8 million back then, , a 3.1% decline, , would be equivalent to a drop of 4.3 million jobs today. , Through November, , payroll losses totaled 1.9 million, , and December data, , due on Jan. , 9, , will most likely raise that number.

Layoffs, , as illustrated by new claims for unemployment insurance, , zoomed higher at the end of 2008, , portending more big payroll declines and higher unemployment in coming months. , December claims averaged 573, ,000 per week, , a level not seen since the peak monthly rate of 667, ,000 in 1982. , However, , that comparison exaggerates the implication for the unemployment rate. , Adjusted for the 42% growth in the labor force, , claims would still be less than their peak after the 1990-91 recession, , when the jobless rate topped out at 7.8%. , Today’s equivalent of the 1982 apex in claims would be about 1 million per week.

The current recession could easily end up as deep as the 1981-82 downturn in terms of the fall in GDP. , But given the massive policy efforts by the Federal Reserve, , along with fiscal stimulus that may equal more than 2.5% of GDP in each of the next two years, , a drop-off in growth big enough to push the jobless rate to 10% seems highly unlikely. , Clearly, , this is a bad recession. , But not that bad.



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