This article was posted on Monday, Nov 16, 2020

by Klarise Yahya, Commercial Mortgage Broker, BRE: 00957107  MLO: 249261


Continued . . . Recession of 1945 –Duration: 9 mos. GDP decline: 10.9%. Peak Unemployment: 5.2%.  10yr T-Note Beg 2.36% / End 2.23%.

Rapid demobilization following WWII reduced America’s armed forces to 1,566,000, an 87% reduction but still about 9 times the pre-war 1939 level). The end of the war meant that 10.5 million unemployed former servicemen and women were trying to find a job, an apartment, a car and a Significant Other all at the same time. The boys quickly learned that having the first three increased the odds of getting the fourth.


- Advertisers -

Wartime rationing was lifted as the troops returned home and demobilization progressed. All during the war years there was nothing to buy: everything went to the war effort.  But things still wore out. There was ever more suppressed demand as the war years rolled past. Then, suddenly, there was no more rationing. Sales of everything skyrocketed. Within a year the wartime industries were back in civilian territory, making bobby pins, nylon stockings, Chevrolets and Jack Daniels. There was a transition period accounting for the significant GDP decline, but the ramp-up to civilian production was so fast that demobilized servicemen quickly got jobs, as reflected in the 1945 unemployment rate peaking at 1.9%. That was not far off the 1.2% rate of 1944. It was an astonishing achievement.

Takeaway:  The velocity of money increased as needful things unavailable during the war years became suddenly accessible. People had held themselves in check for four years. Now they could hardly wait to buy new tires or a pretty dress. Money moving quickly from one hand to another (taxed each step along the way, of course) enlarged the money supply (in a functional sense) and put an end to the Recession of 1945 within 9 months. Interest rates dropped a token 13 basis points, indicating balanced supply and demand.


Recession of 1949 – Duration: 11 mos. GDP decline: 1.7%. Peak Unemployment: 5.7%.  10yr T-Note Beg 2.33% / End 2.32%

Needful things were frenzy-purchased during the first years following WWII. Due to lag times, manufacturers adapted (first) by hiring more workers and (secondly) by ordering new labor-saving machinery. Eventually the lines crossed and supply of available products began to exceed demand. Industry responded by keeping the new machinery (what else could they do with it?) but furloughing many of the recently hired (unemployment rose to 7.9%).

Takeaways:  Unemployment rose faster than Gross Domestic Product fell, indicating that fewer people were needed to produce the same goods, as one would expect given the new machinery. Productive employees were retained, but the others were encouraged to apply their skills elsewhere.


Recession of 1953 – Duration: 10 mos. GDP decline: 2.7%. Peak Unemployment: 5.9%.  10yr T-Note Beg 2.93% / End 2.37%.

This event was a redux of the post-WWII recession, but in a minor key.  The heavy government spending necessary to fund the Korean War dried up and the armed services were demobilized. Companies providing war material shifted to civilian products. This often required new machinery. Overcapacity followed, and then layoffs. Unemployment rose to 5.9%. The Federal Reserve responded by reducing interest rates 56 basis points.

The timing is interesting. The war was still being contested in the first half of 1953. The fighting mostly stopped by July, but the war wasn’t over. It never officially ended.  Both sides simply declared victory and went home. As noted, the end of the war meant a significantly lower level of government spending and a recession followed.

Even after the shooting stopped, it took a couple of months for the 1953 demobilization to be reflected in the employment numbers. Unemployment for the first ten months of that year was mostly range-bound at the 2.5% to 3.0% level.

But by November demobilization numbers began to be reflected in the unemployment rate, which had climbed to 3.5%. A month later, in December, it was 4.5%. This was a 67% increase in unemployment (2.7% to 4.50%) and was sufficient to move the Fed towards lower interest rates.

Unemployment rates responded slowly. It took about a year for the lower interest rates to improve the unemployment numbers. In April and May, 1954, the unemployment rate was 5.9%. It was 5.8% in July, 6.0% in August, and 6.1% in September. Then the lower interest started to have an effect and by December, 1954, unemployment had declined to 5.0%.


Recession of 1957 – Duration: 8 mos. GDP decline: 3.7%.  Peak Unemployment: 7.4%.  10yr T-Note Beg 3.93% / End 2.88%.

The Asian Flu (H2N2) pandemic spread from Hong Kong to India, Europe and the United States, killing an estimated 70,000 in America and more than a million people worldwide. Domestic GDP shrank. US exports were lowered by $4 billion. Consumer discretionary spending fell.

The Fed had recently been increasing interest rates to hamper inflation and was loathe to lower rates to their former levels. President Eisenhower sidestepped the Federal Reserve and, with the concurrence of Congress, injected money into the economy by signing the Federal Highway Aid Act, an infrastructure program that reflected the principles of FDR’s New Deal. This was the Act, by the way, that stimulated the 41,000 mile interstate highway system.

Takeaways: This was one part of a sharp worldwide recession, compounded domestically by the continuing strength of the US dollar (strong dollar: it takes increasing numbers of pounds / pesos / rupees to equal the purchasing power of one U.S. dollar). The dollar’s strength generated a foreign trade deficit (foreign trade deficit: their stuff is cheap to us, so we buy a lot; our stuff is dear to them, so they buy very little from us. This transfers money from us to them) and meant we were slapped pretty hard by the 1957 Recession. Unemployment was greater than in the 1945, 1949, or 1953 recessions. It would not be until 1973 that recessionary unemployment exceeded the 1957 downturn. Interest rates fell 105 basis points in 8 months.


Recession of 1960 – Duration: 10 mos.   GDP Decline: 1.6%. Peak Unemployment: 6.9%.  10yr T-Note Beg 4.28% / End 3.78%.

There were two major causes for this recession. One was a new enthusiasm for small cars. Consumers started buying compact foreign cars and the domestic automakers took haircuts as they adjusted to the new demand. This caused a (temporary) reduction in profits. The other was, once again, the Fed raising interest rates to fight inflation when in retrospect the more immediate problem was impending recession. When the Fed reduced rates the economy reignited.

Takeaway: The Fed has immense power to affect the economy through interest rate changes. But they are a cautious lot: they nearly always titrate their adjustments. Unemployment up? Maybe interest rates are too high. Reduce them a bit and note what happens. Ratchet up or down from there. Is inflation a threat? Marginally increase interest rates and adjust as indicated. In the case of the 1960 Recession, the correction took only a token 50 basis point interest rate reduction.


Recession of 1970 –Duration: 11 mos.  GDP Decline: 0.6%.  Peak Unemployment: 6.1%.  10yr T-Note Beg 7.65% / End 6.84%.

The Fed’s inflation battle worked for the first half of the 1960s. From 1960 to 1965 America’s annual inflation rate averaged 1.32%. Then Congress began to pay down the deficit accrued during the Vietnam War (fiscal tightening). Fiscal tightening (i.e., reduced government spending) means there would be less money in circulation, and what there was would, naturally, cost more to borrow. Higher interest rates may check incipient inflation, but at the cost of greater unemployment. This is clear in the chart below showing the inflection years of 1969 and 1970. Inflation started this dance in 1969 (increase of 150 basis points year over year). Unemployment and Interest Rates lagged Inflation by one calendar year. In 1970 Unemployment (up 2.6% year over year), and the Beginning of Year 10-year Treasury shot up 175 basis points over the BOY 1969 rate. Inflation went from 6.2% (1969) to 5.6% (1970) to 3.3% (1971), showing the efficacy of the increased interest rate of 1970.


Year Unemployment


10 Yr T-Note % Inflation


1968 3.4 5.53 4.7
1969 3.5 6.04 6.2
1970 6.1 7.79 5.6
1971 6.0 6.24 3.3
1972 5.2 5.95 3.4


Caution to Reader: The chart above is for illustrative purposes. Past performance is no guarantee of future results.


After raising interest rates to deal with inflation, the Fed lowered rates to address unemployment (compare 1970 T-Note rate to 1971 and 1972) and unemployment fell 80 basis points (6.0% minus 5.2%). The unemployment issue resolved.

Takeaway: We’ve seen this movie many times: the economy seeks equilibrium. If interest rates are too low, disequilibrium is expressed through inflation: if rates are too high, it is expressed through unemployment rates. For the Fed, it’s a dreadful balancing act. In the Recession of 1970, interest rates required a relatively minor net adjustment of 81 basis points.



This article is for informational purposes only and is not intended as professional advice. Nothing in this article is presented as investment guidance. For specific circumstances, please contact an appropriately licensed professional. Klarise Yahya is a Commercial Mortgage Broker specializing in difficult-to-place mortgages for any kind of property. If you are thinking of refinancing or purchasing real estate Klarise Yahya can help. For a complimentary mortgage analysis, please call her at (818) 414-7830 or email [email protected].