What's up with 1957-1961?

[Clarko95 📚💰📈]

So 1945 to 1973 is the infamous "Post-WWII Boom" and what-not. There were several recessions during this time: 1948-49, 1953-54, 1960-61, and 1969-70 before the big 1973-75 one.

But it was only the Recession of 1957-1958 that was truly serious and global. Unemployment rose from 4.1% in August '57 to 7.5% in July '58, and fluctuated rapidly from 1958 to early 1960 when another, more mild recession began, rising from 5.2% April 1960 to 7.1% May 1961. (Source: http://online.wsj.com/public/resources/documents/JOBSHISTORY09.html)

GDP contracted severely in early 1958, worse than what happend in 2009.

I know the Fed raising interest rates had a lot to do with these recessions, but what's up with the deep funk late-50s/early-60? The Fed can't be the only macro-explanation.

[bedstuy]

Fiscal conservatives doing the lord's work perhaps?  In 1957, the US had a debt ceiling fight and government spending went down.  That, along with overly restrictive monetary policy, might have been the instigator.

http://www.bloomberg.com/news/2011-07-25/history-suggests-debt-ceiling-fights-may-be-good-for-us-echoes.html

[Franknburger]

I am not sure the 1957-58 recession was really global. In coincided with the German "coal crisis", which, however, was very specific and short-lasting. Essentially, the German government had abolished import duties on oil, which resulted in the closure of several coal mines. German unemployment went up briefly, but quickly continued to decline to 1.3 % in 1960.

For the US, the economic crisis seems to have been triggered by the Suez Canal crisis, which sent up oil prices quite strongly - much more than in Europe, which made the anti-monopoly commission investigating into price manipulation by major oil companies. Most likely, this was followed by the usual mechanics (inflation goes up, real consumer spending declines, money supply is tightened, etc.)

Looking at the fundamentals, the US markets for durable goods had reached more or less saturation (nearly 100% of households owning refrigerators, 90% owning TVs, 77% cars). At the same time, production equipment, most of which had been installed in the late 1930s / early 1940s, i.e. after the Great Depression and prior to the US' entry in WW II, was more and more becoming outdated, especially in comparison to Europe, which had seen massive investment during post WW II reconstruction. Europe still had substantial unsatisfied demand for durables, most likely also  lower labour costs than the USA, making it an attractive investment location.  1957 was the first year since WW II in which the US became a net capital exporter.

In such a situation, recovery takes some time. However, replacement demand for durables would gradually set in, coupled with demand for new products (e.g. colour TVs) and services (e.g. air travel), and stimulate overdue modernisation investment.

[Ban my account ffs!]

Obviously just a coincidence.. or perhaps not:

The Pacific ocean's largest known climate cycle, the Pacific Decadal Oscillation, generally follows either the negative or positive phase for periods of 20-40 years.  But usually there will be a period within a broader cycle where it flips for a couple years.

This happened precisely in early 1957 and lasted until mid-1961... when the PDO moved from its long established negative phase (1946-1957) and became very positive, especially in the 1957-1959 period.

This might not be unimportant because the El Niño of 1957-58 was the largest in 20 years at the time and disrupted the Asian monsoon.  Rather than a quick turnaround, this disruption lasted for a few years.  It is probably no coincidence that China's famine was so bad.  The human reasons as well as the weather played a role.

Of course for the U.S. that might not be significant.. in fact because in 1957, the southern plains/Texas was emerging from its worst drought on record (far worse than the dustbowl).

[muon2]

The fundamentals may have been ripe for recession, but typically a trigger is needed. Don't overlook the impact of the 1957 Sputnik launch on the mood of consumers. This is from NASA's history:

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The US approach to science and education underwent a fundamental change in reaction to the event. not only was NASA created, but the current debate over student loans traces back to Sputnik as well.