1990-92 Early 1990s Recession


The recession of the early 1990s lasted from July 1990 to March 1991. It was the largest recession since that of the early 1980s and contributed to George H.W. Bush's re-election defeat in 1992. Although mainly attributable to the workings of the business cycle and restrictive monetary policy, the 1990-91 recession demonstrated the growing importance of financial markets to the American and world economies.


From November 1982 to July 1990 the U.S. economy experienced robust growth, modest unemployment, and low inflation. The "Reagan boom" rested on shaky foundations, however, and as the 1980s progressed signs of trouble began to mount. On October 19, 1987 stock markets around the world crashed. In the U.S. the Dow Jones Industrial Average lost over 22% of its value. Although the causes of "Black Monday" were complex, many saw the crash as a sign that investors were worried about the inflation that might result from large U.S. budget deficits. The American housing market presented another sign of weakness, as in the second half of the 1980s a large number of savings and loan associations (private banks that specialized in home mortgages) went bankrupt. The collapse of the S&L industry negatively impacted the welfare of many American households and precipitated a large government bailout that placed further strain on the budget.

Although the 1987 stock market crash and the S&L crisis were separate phenomena, they demonstrated the growing importance of financial markets—and associated public and private sector debt—to the workings of the American economy. Other causes of the early 1990s recession included moves by the U.S. Federal Reserve to raise interest rates in the late 1980s and Iraq's invasion of Kuwait in the summer of 1990. The latter drove up the world price of oil, decreased consumer confidence, and exacerbated the downturn that was already underway.

Although the National Bureau of Economic Research has concluded that the early 1990s recession lasted just eight months, conditions improved slowly thereafter, with unemployment reaching almost 8% as late as June 1992. The sluggish recovery was a key factor in George H.W. Bush's defeat for re-election to the U.S. presidency in November 1992.


Mark Carlson, "A Brief History of the 1987 Stock Market Crash with a Discussion of the Federal Reserve Response," Federal Reserve Board, Washington, D.C. (2006):

Peter Temin, "The Causes of American Business Cycles: An Essay in Economic Historiography," in Jeffrey C. Fuhrer and Scott Schuh, eds., Beyond Shocks: What Causes Business Cycles? (Federal Reserve Bank of Boston, 1998), 37-59.

Carl Walsh, "What Caused the 1990-1991 Recession?" Economic Review of the Federal Reserve Bank of San Francisco (1993): 34-48:

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