1981-1982 Recession Timeline

The purpose of this summary is to describe how the recession started, the events that led up to it, the size, and what happened in result. The recession started in July of 1981 and ended in November of 1982.

In 1980, the United States economy was already in bad shape due to a 6 month long recession that the United States economy eventually made a modest recovery from. Although the short 1980 recession is not the focus of this report, it did play a part in the events that led up to the 1981-1982 recession. Unemployment was around 7.5 percent and in July of 1981, the United States officially entered a recession. Sectors of the economy that relied on borrowing such as construction and manufacturing were being pressured by high interest rates.

Interest rates continued to rise in order to reduce inflation; this caused manufacturing and housing to weaken. The savings and loans industry suffered during this time. They experienced frequent account withdrawals, as depositors moved their money to higher-earning accounts offered by commercial banks. The savings and loans industry was already struggling, the recession only made it worse. High mortgage rates destroyed the value of mortgage-backed loans, which is the primary asset of the savings and loans association. The fixed-rate loans were sold at a loss in order to balance withdrawals. That asset liability mismatch was identified as the primary cause of the savings and loan crisis.

Jobs were lost and unemployment rose from around 7.5% to more than 10%. The recession caused a loss of 2.9 million jobs, representing a 3% drop in payroll employment.

Many people blamed the recession on President Jimmy Carter, who was in office from 1977-1981. Lots of people blamed Carter because the recession started during his first term. Ronald Reagan was the President of the United States, and in August of 1981 he signed the Economic Recovery Tax Act of 1981, which was a three-year tax cut plan. Reagan’s economic plan gave hope to the citizens of the United States that the recession would end soon. The recession got worse in 1982 and Reagan’s approval rating

Lowering tax rates was another economic change that people said lead to the recovery. Unemployment went from 10.8 percent in December of 1982 to 7.4 percent in December of 1984. Inflation fell from 10.3 percent in 1981to 3.2 percent in 1983. Industries that were hit the hardest during the recession made dramatic improvements; these industries were paper and forest products, rubber, airlines, the auto industry, construction and manufacturing, and the savings and loans industry. During the recession and towards the end of the recession in 1983, President Ronald Regan’s approval ratings were at an all time low. In January of 1983, the United States economy slowly started to recover. Unemployment dramatically decreasing, inflation falling, and the economy being in way better shape than they were in 1981 and 1982 led to President Regan’s landslide of a victory to take his second term as President of the United States. The United States prospered during Regan’s second