1956 | Eisenhower Recession

Also known as the Eisenhower Recession, the 1957-58 recession manifested itself in a severe, worldwide economic downturn. The effects of the recession spread beyond the borders of the United States to Europe and Canada and led to the closure of many businesses. It was the most significant recession during the post-World War II boom between 1945 and 1970 and was characterised by a sharp economic decline that lasted eight months. By the time the recovery began in May 1958, most of the lost ground had been regained. By the end of 1958, the economy was moving towards a new high level of employment and production.


The recession of 1957-1958 was preceded by an expansionary economy. Before the crisis, US GDP growth in the third quarter of 1955 was extremely high at 8.0% and showed impressive export activity. The rise in market prices of some commodities also contributed to the economic boom.

Several factors exerted growing downward pressure on production and employment, leading to a general reduction in economic activity.

New car sales declined sharply as middle-class consumers decided to keep their cars longer instead of replacing them after a few years. Car sales were down 31% from 1957, making 1958 the worst car year since World War II. In just three years, car sales fell from nearly 8 million purchases in 1955 to 4.3 million purchases in 1958.

Housing construction slowed due to higher interest rates in 1955 and 1956, and by 1957 new housing construction had fallen to about 1.2 million units.

Business in the capital goods industry gradually declined, leading to the end of an expansionary boom. The initial problems began in 1956 with a slowdown in business planning for equipment replacement and expansion of production facilities, which led to a decline in new orders for equipment. This led to a widening gap between supply and utilisation of industrial capacity. Federal Reserve economists believed that the government had contributed to the recession by restricting Department of Defence purchases in 1957.

Development of the S&P 500 between January 1956 and December 1958

Progression of the crisis

Vorkrisenjahr 1955

Das BIP der USA wächst um 8,0%.


Der Neuwagenverkauf fällt um 31 %.

Februar 1958

Die Rezession gilt als beendet, Verbraucher- und Unternehmensvertrauen erholen sich.


Durable goods manufacturing and the lumber, mining and textile industries were three of the hardest hit. Due to a sharp decline in unfilled orders for durable goods and a drop in demand for goods and other materials, the 1958 recession forced more than five million people into unemployment.

Although unemployment rose in the United States, there was little or no decline in personal income. Overall, the employment rate fell by 6.2%, resulting in 2 million job losses and 1.3 million unemployment insurance claims. Unemployment was highest in industrial areas in the Northeast and Midwest and in mining areas in Pennsylvania, West Virginia and the West. Michigan suffered the second worst with an unemployment rate of 11% – Detroit held a record high of 20%, due in large part to a 47% drop in automobile production. When unemployment rates rose above 5.1 million in January 1958, they were higher than at any time since 1941.

The impact on prices and costs was an obvious paradox as prices continued to rise while output and employment fell. In previous recessions, prices tended to fall under recessionary conditions, but this time they fell except for commodities. US consumer prices rose 2.7% from 1957 to 1958 and, after a pause, continued to rise until November 1959. Wholesale prices rose 1.6% from 1957 to 1959. The continued rise in prices was a cause of concern for many well-known economists.


The government’s efforts to bring about a rapid economic recovery played an important role in mitigating the recession. Dwight D. Eisenhower, Raymond J. Saulnier, Robert B. Anderson and Lyndon B. Johnson were some of the key figures who played an important role in this effort. Eisenhower’s main focus was to stimulate recovery while keeping the government’s financial “house” in order.

To stabilise the economy, the government and the Federal Reserve pursued a series of counter-cyclical measures. The federal government’s fiscal behaviour contributed significantly to stabilising the economy. For example, in 1958 Congress allowed mortgage loans to be taken out without equity. The aim was to revive housing construction.

Construction projects already underway were accelerated and those already financed were planned and started immediately. The Ministry of Agriculture’s projects for water resource programmes and rural electrification were pushed forward. To encourage housing construction, the administration ended restrictions on no-down-payment mortgages.

Finally, in June 1958, Congress passed legislation authorising federal assistance to states to extend the duration of unemployment benefits.

Monetary policy also played a role in dealing with the recession. The Federal Reserve took steps as soon as it became aware of the severity of the situation, lowering the discount rate to 1.75% until conditions began to improve.

By the end of the recession, the index of industrial production was 142% of the 1947-1949 average, total employment had risen by about 1 million from its recession low, while unemployment had fallen by 1 million. Individual income and expenditure were at new high levels. Gross national product, the broadest measure of the country’s production of goods and services, had risen to an annual rate of $453 billion.


The recession did not prompt the government to cut taxes. Even during the recession, President Dwight D. Eisenhower’s priority remained keeping inflation low and balancing the budget. When the Democrats proposed a substantial tax cut, Eisenhower resisted.

Instead of using taxes as a fiscal policy tool, the government relied on monetary policy. One of the Fed’s policies was to lower the discount rate to 1.75% to help banks get more credit from the central bank. In addition, the Fed also conducted an open market operation by buying a large number of government bonds from the market.

As the recession was considered to have ended in February 1958, consumer confidence also recovered in the second quarter of the same year. Likewise, business sentiment brightened again. The positive economic outlook helped companies to employ more people and thus reduced the unemployment rate.

GDP growth turned positive at 2.7% in the last quarter of 1958 and peaked at 9.1% in the second quarter of 1959.

Comparison previous year / crisis year

7 Medium-term fractal indicators - 1956

7 Medium-term fractal indicators - 1957

Chart legend for the seven medium-term fractal indicators

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