Recession vs. Depression

Posted on | December 1, 2008 | 2 Comments

After learning that we have been in a recession since December of 2007, many have been asking what the difference is between a recession and a depression.  Unfortunately, there is no true answer as a depression is not defined.  An old saying is that we are in a recession if your neighbor losses his job, but we are in a depression if you lose your job.  A recession is defined by the National Bureau of Economic Research as “a significant decline in economic activity spread across the country, lasting more than a few months, normally visible in real GDP growth, real personal income, employment, industrial production and wholesale retail sales.”  Many business encyclopedias include that there must be two consecutive quarters of negative GDP growth.

The depression of the 1930’s was labeled a “depression” to express an extended period of economic decline.  Many recessions are 12 to 18 months, but a depression is referred to as years of decline.  A depression is also looked at as an extremely severe recession in which the GDP declines by 10 percent or more.  To put this into perspective, the worst recession in the last 60 years was in the mid 1970s in which the GDP’s largest decline was 4.9 percent.

Overall, we have been in a recession since December of 2007, but it has to get MUCH worse to even consider thinking about the “Second Depression.”  I personally think it will get worse before it gets better, but no where near depression status.

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