The period between 1979 and 1983 was marked by significant economic turbulence in the United States. Inflation rates were high, the stock market experienced volatility, and interest rates were on the rise. Here are some key facts and figures from that era:
Inflation: In 1979, the US inflation rate peaked at around 13.3%, the highest level since World War II. Inflation remained above 5% for most of the period between 1979 and 1983.
The US inflation rate rose above 4% at the begging of 2021, reaching as high as 9.1% in 2022 and sitting at 6% for February 2023.
Stock Markets: The US stock market experienced significant fluctuations during this period. In 1979, the Dow Jones Industrial Average had an annual average closing price of around 838 points. By the end of 1983, it had risen to approximately 1,258 points, representing an increase of close to 50%. The S&P 500 index also experienced significant fluctuations but ended the period with a net gain of close to 54%.
Real Estate: Property prices in the US increased by around 34% between 1979 and 1983, driven by high inflation and rising wages.
According to the Federal Housing Finance Agency’s (FHFA) House Price Index, which tracks changes in the prices of single-family homes purchased with conforming mortgages, property prices in the US increased by an average of about 56% from 1979 to 1983.
However, it’s important to note that this increase varied by region and was not consistent across all areas of the country. Some cities and regions experienced much higher rates of increase, while others experienced more modest growth or even declines in property prices during this time period.
Additionally, the FHFA House Price Index only measures the prices of homes purchased with conforming mortgages, so it may not fully capture changes in the prices of all types of properties, such as luxury homes or commercial properties.
Interest Rates: In response to inflationary pressures, the Federal Reserve implemented a tight monetary policy, which involved raising short-term interest rates to very high levels in order to slow down the growth of the money supply and bring inflation under control. The yield on the 10-year Treasury note increased from around 9% in 1979 to over 13% by 1983. This led to significant declines in bond prices and lower returns for those holding bonds.
Unemployment: During the period between 1979 and 1983, the US experienced high levels of unemployment as a result of a combination of factors including a recession, high inflation rates, and the implementation of tight monetary policy by the Federal Reserve.
According to the Bureau of Labor Statistics, the US unemployment rate in 1979 was 5.8%. However, by 1982, it had reached a peak of 9.7%, the highest level since the Great Depression. This rise in unemployment was primarily driven by the recession that began in 1980, which was caused in part by the Federal Reserve’s efforts to combat high inflation by raising interest rates.
It wasn’t until 1983 that the US economy began to recover and unemployment rates started to decline. This recovery was driven in part by the implementation of expansionary monetary and fiscal policies, which helped to stimulate demand and create new job opportunities. By the end of 1983, the US unemployment rate had fallen to 8.3%, marking the beginning of a sustained period of economic growth that continued throughout much of the 1980s.
Financial system: there was a widespread banking crisis in the early 1980s, which was caused by a combination of factors, including high inflation rates, a recession, and rising interest rates. Many banks had made risky loans to customers who were unable to repay them, leading to a surge in loan defaults and a sharp increase in the number of bank failures. Between 1980 and 1982, over 500 banks failed, and the total assets lost amounted to over $70 billion.
Secondly, the savings and loan industry also experienced significant challenges during this period. Savings and loans (S&Ls) were financial institutions that primarily focused on accepting deposits and making mortgage loans. However, rising interest rates in the early 1980s made it difficult for S&Ls to generate profits, as they had to pay higher interest rates on deposits than they were receiving from the mortgages they had issued. Many S&Ls had also made risky investments in real estate and other speculative ventures, which further exacerbated their financial challenges. As a result, many S&Ls were unable to meet their obligations, leading to a wave of bankruptcies and government bailouts.
In addition to the banking crisis and the challenges faced by the S&L industry, the financial system also faced significant regulatory changes during this period. In 1980, Congress passed the Depository Institutions Deregulation and Monetary Control Act, which deregulated the savings and loan industry and allowed banks to offer higher interest rates on deposits. This change led to increased competition among financial institutions and contributed to the crisis in the S&L industry.
Overall, the period between 1979 and 1983 was a challenging time for the US economy and for investors in particular. High inflation rates, rising interest rates, and stock market volatility created significant uncertainty and made it difficult to make investment decisions. Nevertheless, the US economy ultimately emerged from this period of turbulence and continued to grow and evolve in the decades that followed.”