A recession is a downtrend in the economy that can affect production and employment, and produce lower household income and spending. The effects of a depression are much more severe, characterized by widespread unemployment and major pauses in economic activity. Recessions can also be more localized, while depressions can have global reach. Before the Great Depression of the 1930s, any downturn in economic activity was referred to as a depression. The term recession was developed in this period to differentiate periods like the 1930s from smaller economic declines that occurred in 1910 and 1913. This leads to the simple definition of a depression as a recession that lasts longer and has a larger decline in business activity.

1. But it wasn’t anywhere near as bad as the Great Depression.
2. But “based on known unknowns, I would say that the risk of an outright depression is relatively small.”
3. While people often worry about economic depressions, they are much rarer than recessions.
4. Slowing inflation has lowered the chances that the Federal Reserve will raise interest rates further this year in an effort to dampen economic growth and consumer price increases.
5. This can increase the number of applicants for every available position, resulting in a highly competitive labor market.

Great Big List of Beautiful and Useless Words, Vol. 3

If we use those dates, it means the Great Depression technically included two recessions. The economy has been on a rollercoaster ride for the past few years, starting strong in 2020 but dropping off precipitously due to the COVID-19 crisis before bouncing back so drastically that it overheated. Now, with the war in Ukraine, record-high inflation and continued supply chain issues, the economy is struggling again — and folks are increasingly debating whether the U.S. has entered a recession. These periods of economic decline frequently last about a year, according to figures provided by the International Monetary Fund (IMF).

Recession vs. Depression: How Do These Economic Terms Compare?

Depressions may sound similar to recessions but tend to be much more severe. Most importantly, they tend to last for a much longer period of time. Definitions https://www.1investing.in/ vary, but a depression typically refers to a severe and long-lasting economic decline that can affect several countries simultaneously.

How to Protect Your Money in a Depression

Much of that uncertainty has to do with as-yet-unknown variables regarding future viral outbreaks. “If the COVID-19 numbers start looking worse with the lockdown restrictions eased, that’s the biggest concern to me,” North said. “That’s a huge downside risk,” he said, since a reluctance by Americans to resume shopping, eating out and engaging in other consumer activities would slam the brakes on any recovery momentum.

The recession is said to start at the peak of the economic expansion, near the moment it starts to decline. It is said to end at the bottom of the economic trough, right as the economy begins its recovery. “What are business cycles and how do they affect the economy? In addition, both the Great Depression and the Great Recession were kicked off by asset deflation. “If there’s a serious second wave as businesses reopen, then we’re going back into recession — and this period will go down as a depression.”

That confusion isn’t only because a word like recession is often used in contrast to a word like depression. It’s also because there aren’t any hard-and-fast, across-the-board, formula for operating income one-size-fits-all rules about when an economic tailspin becomes a recession—or worse. Officially, the most recent recession occurred between February 2020 and April 2020.

But Schlossberg noted that the rules aren’t always hard and fast. NBER declared a recession in the early months of 2020, despite the economic slump lasting just two months ‒ much shorter than thetwo consecutive quarters of negative GDP growth that are often used to label a recession. But there may be some consolation in better understanding economic recessions and depressions, and that all things have their cycles, their ups and downs. When prices are falling in the stock market, it’s called a bear market. When prices are rising in the market, it’s a bull market, when investors frequently like to buy.

In the U.S., that’s the Federal Reserve, The Fed can goose the economy simply by lowering the interest rates it charges banks for the short-term loans that keep the banking system running. The Great Depression began in the United States but soon took hold throughout the industrialized world. The era was characterized by catastrophic levels of unemployment, poverty, hunger, and political unrest. U.S. unemployment reached a level of just under 25% in 1933 and remained in the double digits until 1941 when it finally fell to 9.66%.

Especially with the threat of viral recurrences and subsequent outbreaks, “I can certainly believe people are going to want a little bit more of a nest egg socked away,” he said. To be sure, some hallmarks of the current economic catastrophe already bear an uncomfortable resemblance to those of nearly a century ago. The speed and severity of the COVID-19-induced economic shock has some key economic metrics already rivaling those not seen since the 1930s, said Constance Hunter, chief economist and principal at KPMG. Marianne Hayes is a content strategist and longtime freelance writer who specializes in personal finance topics. Keep a close eye on the Fed’s regular reports on regional trends, which can sometimes point to softness in the economy. A chart from the Federal Reserve of recessions since 1970 suggests how long a recession can last.

Real-Time Round-Ups® investments accrue instantly for investment during the next trading window. Staying invested, even during market downturns, can allow you to benefit from future recoveries. Still, that’s kind of a clinical way to think about it, and doesn’t fully embrace the profound unhappiness a recession can cause for investors, companies, and anyone who needs to put food on the table. As an investor, that means keeping your portfolio diversified to include safe haven picks that do well even in a downturn.

Recessions are more common and represent significant declines in economic activity. A depression is an extreme recession that lasts longer and is accompanied by severe economic contraction. Neither are great for the economy, but no recession or depression has lasted forever.

Economic downturns are temporary, even though they don’t always feel that way. Stay the course with your long-term investment strategy — reacting emotionally is never a good idea — and remember that the markets rebound from even the worst slumps. For example, economists like to joke that “a recession is when your neighbor loses his job; a depression is when you lose your job.” Yes, there are different types of recessions, which can vary in terms of length and intensity. Because economists do not have a set definition for what constitutes a depression, the general public sometimes uses it interchangeably with the term recession.