From Recession to Recovery and Growth

THE MAJOR ECONOMIC ACHIEVEMENT OF 1982 was a dramatic reduction of inflation to its lowest rate in a decade. The 4.6 percent increase in the gross national product (GNP) implicit price deflator between the fourth quarters of 1981 and 1982 was less than half the 10.2 percent rate of increase between the fourth quarters of 1979 and 1980. This decline in inflation has moderated the earlier widespread fears that inflation would accelerate. While some of this improvement in inflation was transitory, reflecting such special factors as the appreciation of the exchange value of the dollar, the largest share was almost certainly due to a decline in the underlying rate of inflation. The reduced rate of inflation is a major step toward the Administration's goals of full employment, healthy economic growth, and price stability. The progress made in reducing inflation, however, was accompanied by a painful slowdown of the economy. Beginning in July 1981, the Nation suffered the second of two back-to-back recessions that brought the unemployment rate to 10.8 percent in December 1982. At that time, approximately 5 million more people were unemployed than in January 1980, when the first of the two recessions began. The increase in long-term unemployment poses a particularly severe problem. In January 1980, about 550,000 people had been unemployed for more than 6 months. In December 1982 there were more than four times as many. Long-term unemployment is particularly serious in that it causes substantial financial hardship and is associated with a loss of job skills that may reduce future income significantly. Some temporary decline in real economic activity was probably unavoidable in the process of reversing the upward trend of inflation. The United States entered the 1980s with a high rate of inflation and with widespread public expectations that the rate would remain high, and perhaps increase. As high inflation persisted, it became embedded in the plans and contracts of firms and workers, and lowering it involved a painful process. The decline of real GNP since early 1981