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Why the 1970s was the worst decade for the US economy

GOBankingRates logo GOBankingRates 2/9/2019 Andrew DePietro
a sign on the side of a building© David Falconer / U.S. National Archives   

A two-year recession was just the tip of the iceberg.

Who doesn’t remember the 1970s fondly? It was the decade that brought us disco, the blockbusters “Jaws” and “Star Wars” and so much more. But there is another picture of the 1970s that Americans will likely remember — and should remember. A decade of long lines at the gas station. A decade when the dollar went off the gold standard and the stock market plunged like it hadn’t since the days of the Great Depression.

For this study, GOBankingRates analyzed the 1970s based on a number of economic and statistical factors, ranging from stock market performance to energy costs, wage growth, unemployment figures and GDP growth, plus crucial social and political events. Find out why the 1970s was the United States’ worst decade economically, and how it still impacts the country today.

The 1973-75 Recession Breaks the American Economy

The 1970s experienced what would be the worst economic downturn since the Great Depression. From November 1973 to March 1975, the U.S. was gripped by a vicious recession characterized by “stagflation” — high unemployment plus high inflation — a unique feature of this particular economic slump.  And even after the official end of the recession, the effects were felt for many years to come.

Worst Stock Market Crash Since the Great Depression

Naturally, the severe recession of the 1970s was closely linked to the stock market. In December 1972, the S&P 500 closed the month at 118.05, which would turn out to be its highest monthly value for the entire decade. In the first week of January 1973, the S&P moved up slightly higher, but then the bottom fell out and the rest of the month was all downhill. Over the next two years, the S&P would hemorrhage nearly half its value, down to a low in September 1974 when it closed at 63.54.

After that, a six-month upswing began in December 1974. But by that point, the damage had been done. In fact, the S&P 500 wouldn’t exceed its December 1972 value again until July 1980 when it closed the month at 121.67. To this day, this downturn ranks among the worst stock market meltdowns in history.

The impact of the 1973-75 recession was huge. According to the Bureau of Labor Statistics, 2.3 million jobs were lost during this period. The decade began promisingly. In January 1970, the U.S. had an unemployment rate of only 3.9 percent. But, this level would be the lowest monthly unemployment rate for the entire 1970s.

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U.S. unemployment rate, in percent, 1973-1975


Editor’s note: Data sourced from Bureau of Labor Statistics’ Current Population Survey, 1970-2018

At the onset of the recession, November 1973, unemployment stood at 4.8 percent. By the official end of the recession in March 1975, unemployment had skyrocketed to 8.6 percent. Unemployment peaked two months later in May 1975, which saw a 9 percent unemployment rate — the highest point for the entire decade.

Perhaps the most striking fact is that U.S. unemployment rate would not drop below 4 percent again for another 30 years. In April 2000, U.S. monthly unemployment dropped to 3.8 percent, a full percentage point less than November 1973. Not coincidentally, this low point of unemployment occurred during the boom of the dot-com bubble.

Income Inequality Begins to Grow

Income inequality in the U.S. is a prominent topic nowadays, appearing often in major news stories and economic reports. And though the income gap has been growing for a while, it wasn’t always like this. The image of America evoked by old shows like “Leave It to Beaver” might be romanticized, but it’s based on real prosperity of the 1950s and 1960s.

Up until the 1970s, the so-called “Great Compression” had for decades been balancing incomes across the U.S. According to the Economic Policy Institute, between 1945 and 1973, the top 1 percent captured only 4.9 percent of total income growth in the country. But after 1973, the top 1 percent saw its share skyrocket, from 4.9 percent up to 58.7 percent between 1973 and 2007.

According to the same report, the top 1 percent now earns 26.3 times the income of the bottom 99 percent. Thus, the trend in America since the 1970s is that the rich get richer while the poor get poorer.

A Decline in Real Wages for the Bottom 90%

Adjusting for inflation, however, today’s average hourly wage has just about the same purchasing power as it did in 1978, following a long slide in the 1980s and early 1990s and inconsistent growth since then. In fact, average hourly earnings peaked more than 45 years ago: The $4.03-an-hour rate recorded in January 1973 had the same purchasing power that $23.68 would today.

A similar measure — the “usual weekly earnings” of employed, full-time wage and salary workers — tells much of the same story, albeit over a shorter time period. In seasonally adjusted current dollars, median usual weekly earnings rose from $232 in the first quarter of 1979 (when the data series began) to $879 in the second quarter of this year, which might sound like a lot. But in real, inflation-adjusted terms, the median has barely budged over that period: That $232 in 1979 had the same purchasing power as $840 in today’s dollars.

Real wages rose at the top of the distribution, whereas wages stagnated or fell at the bottom. Real (inflation-adjusted) wages at the 90th percentile increased over 1979 to 2017 for the workforce as a whole and across sex, race and Hispanic ethnicity. However, at the 90th percentile, wage growth was much higher for white men and women and lower for black and Hispanic men. By contrast, middle (50th percentile) and bottom (10th percentile) wages grew to a lesser degree (e.g., women) or declined in real terms (e.g., men).

Methodology: GOBankingRates analyzed economic data since the 1970s in terms of the following categorical factors: (1) real wage trends, 1979-2017, sourced from Congressional Research Service; (2) stock market crashes, 1970-1979, sourced from Yahoo Finance; (3) unemployment rates, 1970-2018, sourced from the Bureau of Labor Statistics; (4) share of income and income growth, 1945-2015, sourced from Economic Policy Institute; (5) effects of the 1973-1975 recession, sourced from the National Bureau of Economic Research.

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This article originally appeared on Why the 1970s Was the Worst Decade for the US Economy


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