The Recession of 1937-38 Interrupts the Recovery
Real output falls 10 percent and unemployment climbs back to 20 percent
Quick facts
- Dates
- May 1937 to June 1938
- Real GDP
- Fell 10 percent
- Unemployment
- Climbed to 20 percent
- Industrial production
- Fell 32 percent
What happened
The recovery that began in 1933 stalled sharply in a downturn that ran from May 1937 to June 1938. According to the National Bureau of Economic Research it was the third worst recession of the twentieth century. Real GDP fell 10 percent, unemployment, which had come down considerably after 1933, climbed back to 20 percent, and industrial production fell 32 percent. The usual explanations are a contraction in the money supply caused by Federal Reserve and Treasury actions, together with tighter fiscal policy, after the Fed in 1936 doubled reserve requirements to absorb the large excess reserves banks were holding.
Why it matters
The 1937-38 recession is the standard cautionary tale about withdrawing support from a recovering economy too soon. It hit while millions were still out of work and showed that the economy remained fragile years into the New Deal. Economists still cite it when debating how quickly to unwind emergency stimulus, and it drew fresh attention after the 2008 crisis as a mid-recovery relapse to be avoided.
How we know
The output, unemployment, and production figures and the timing of the recession are documented in the Federal Reserve History essay on the recession of 1937-38, citing National Bureau of Economic Research dates and the scholarly literature.
Sources
- Federal Reserve History (Patricia Waiwood). Recession of 1937-38 · Reputable sourcefederalreservehistory.org · The domain "federalreservehistory.org" is on our Reputable source registry. · Link is live and its text matches the event's key terms (Jul 2026)
- Federal Reserve History (Patricia Waiwood). Recession of 1937-38 (causes) · Reputable sourcefederalreservehistory.org · The domain "federalreservehistory.org" is on our Reputable source registry. · Link is live and its text matches the event's key terms (Jul 2026)
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Part of a timelineThe Great Depression20 events · The longest and deepest downturn in the history of the modern industrial economy, from a stock market that lost 89 percent of its value to breadlines that ran for a decadeView all →