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Recession of 1960

In February 1960, Arthur F. Burns, who had served as Chairman of the Council of Economic Advisers from 1953 through 1956, advised Vice President Richard M. Nixon that another recession was imminent and urged on him the need for fiscal expansion. Nixon was unsuccessful in diverting the Administration from its drive for a huge surplus. The unemployment rate was 6.1 percent in Novemer 1960 when Nixon lost the presidential election.

When Kennedy took office, economic conditions as of February 1961 could best be described as "mushy." A recession was clearly underway, and it showed signs of getting worse before it got better. On the other hand, some economic indicators showed surprising strength, under the circumstances, offering good reason to expect that the downturn would be reversed before it got too much deeper.

Kennedy had campaigned on the slogan of “getting America moving again” (which the Nixon campaign staff had privately derided as the peristalsis plan). But, recovery from the 1958 recession had been very sluggish and unemployment remained perilously high—6.8% just after he took office. The Council of Economic Advisers urged him to attack unemployment with New Deal style spending but the president was worried that a large deficit ($7 billion) would be politically untenable in 1964. His economic programs launched the country on its longest sustained expansion since World War II; and he laid plans for a massive assault on persisting pockets of privation and poverty.

Unemployment averaged 4.2 percent of the civilian labor force over the 11 postwar years, 1947 through 1957 inclusive. This period included two recessions (1949 and 1954) as well as the 1951-53 period of low unemployment associated with the Korean conflict. Since 1957 the record deteriorated dramatically. The unemployment rate, seasonally adjusted, has equaled or exceeded 5 percent continuously since November 1957, resulting in a 4-year average of over 6 percent. At the cyclical peak in 1960 unemployment was still 5 percent compared to slightly over 4 percent from mid-1955 to mid-1957.

During all of the post-World War II recessions consumer purchasing power and government spending - Federal, State, and local - remained high. Indeed, in the recent recession of 1960 consumer purchasing power actually increased during the year and only receded slightly in one quarter. The Kennedy Administration inherited the recession of 1960-61 and was determined to use fiscal policy to promote recovery. In the prelude to the 1964 tax cut, Chairman Martin was included in policy discussions as part of a "Quadriad" consisting also of the CEA chairman, the Secretary of the Treasury, and the director of the Budget Bureau. Chairman Martin was included mainly to ensure that the Fed did not offset the expected effect of the tax cut.

The short-lived recession of 1960-61, while having some dampening effect on the expansion of employee-benefit plans, obviously did not produce as great a slackening in growth as the one that occurred in the recession year 1958.

The same general picture prevailed with respect to dependents’ coverage, except that the 1961 advances in coverage for surgical and regular medical benefits did not exceed even those of 1958. This development was offset by the growth in dependents’ coverage under major medical expense insurance. Four miilion more dependents were covered under that program in 1961 than in 1960, the greatest absolute (though not percentage) gain for any year since 1954.

By 1962, Kennedy’s domestic political fortunes seemed bleak. Unemployment remained high and the stock market had failed to recover after losing a quarter of its value.