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What is the Difference Between a Recession and a Depression?

Updated on April 15, 2009

So now that we have been in a recession for 16 months, at what point is it considered a depression? Seeing as it took the nation's top economists 11 months to admit we were in a recession, my guess is that we will probably need to be in a recession for several years before they admit it is a depression. Of course that is IF it doesn't turn around. If the United States can dig itself out of this mess soon, it won't become a depression at all and that would be great.

So with all this talk about recessions and depressions - what is the difference. Have you heard the joke that a recession is when your neighbor loses his job and a depression is when you lose yours? It isn't that funny though. To put it simply a depression is more severe than a recession and lasts longer.

Technically speaking the United States needs to have a decline in Gross Domestic Product (GDP) for two or more quarters of less than 10% for it to be called a recession. A depression would show a decline of more than 10% for at least four quarters. But it took almost four quarters for them to admit we were in a recession. My guess is that if the US were to fall into a depression, they wouldn't admit it until after the fact, once we started to climb out of it.

Of course there are other factors beside just whether or not the GDP declines. There also needs to be a decrease in industry and job loss and the need for public assistance needs to increase. You would naturally see that less of a decrease in job loss and industry would mean recession, while more severe drops would mean depression. Recent unemployment rates of over 10% would typically signal a depression, but yet we are still in a recession only. As you can see there are a lot of factors that go into the if's and when's of recessions and depressions. It can be quite confusing to the average person (I don't understand all the ins and outs of it either) and experts tend to disagree on these topics plenty.

What I see as a positive of everything the US has gone through is that recessions are fairly common events for countries. There are natural ebbs and flows of everything, over the course of history recessions are normal events that every country goes through and they usually resolve themselves fairly quickly. Depressions are much rarer for all countries, although they are harder for a country to come out of. The signs are good that the US won't actually fall into a depression and for that I am thankful.

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    • profile image

      waxi 

      7 years ago

      Great article -thanks jennifer you added to my knowledge

      Waq

    • Evan G Rogers profile image

      Evan G Rogers 

      8 years ago from Dublin, Ohio

      No matter how bad it gets, it will never be called a depression.

      Depressions used to be called "Panics" back in the 1800s, but people thought that it was too serious a name because they inaccurately attributed economic downturns to confidence problems instead of inflationary problems. Then we started calling them Depressions, and ended up having a wickedly horrible one, thanks to FDR, WWII, and the Federal Reserve. Because that one was so bad, it became taboo, and now we call them Recessions. We'll probably have a horrible one and then call them "downturns", and then when that goes bad, we'll start calling them "happy sunshine lollipop uh-ohs".

      Inflation is the problem, let's return to a gold standard. Check out my 'Evan's Easy Economics' to learn more about this all. (I've only got 6 up at this point, i just joined hubpages last thursday! there'll be more up soon!)

    • dreamer32 profile image

      dreamer32 

      8 years ago from Mississippi

      Nice article about the recession! The ecomony has risen over 10% in this time period by which we have not had in a long time! Very good pointers about recession.

    • heart4theword profile image

      heart4theword 

      8 years ago from hub

      No matter what happens? We might learn from the wise saying "prepare for the worst and hope for the best.."

    • profile image

      Deb 

      9 years ago

      ......and Recovery is when Obama loses his job. :)

    • profile image

      dranhreb 

      9 years ago

      Hold your horses! We are not out of the recession! We still may fall into a depression. We have not seen the end yet. Obama is turning the US into a socialist state. Take it from me. I'm an immigrant and lived it. You will be taxed more and more with no benefits.

    • JYOTI KOTHARI profile image

      Jyoti Kothari 

      9 years ago from Jaipur

      Hi Jennifer,

      You have nicely described technicalities of recession and depression. It looks that US is proceeding towards depression. Even a trillion dollar bail out could not uplift the economy. Think of the huge amount!!! Yet not working.

      I have written several hubs since last one year to describe why and how of recession and recovery.

      Thanks for a great hub, usual for you.

      Jyoti Kothari

    • tega20002k3 profile image

      tega20002k3 

      9 years ago from Lagos, Nigeria

      Recession is an economic terms in determining the strength of the economy of a country. Good Article.

    • online4income profile image

      online4income 

      9 years ago from Online, in search of income

      You are right. Recession is an economic trend which never stays forever and has to change, as for recession vs depression, I think recession is an economic depression.

    • Kmadhav profile image

      Kmadhav 

      9 years ago from New delhi

      yes you are right . you give the solid reason between Recession and Depression.

    • profile image

      issues veritas 

      9 years ago

      I did this topic in a hub and my point was, if you lost your job and your house and you have no real savings, there is no difference.

    • Hawkesdream profile image

      Hawkesdream 

      9 years ago from Cornwall

      Thanks for clearing that up, Jennifer, liked the neighbour anecdote.

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