October 8, 2008

What are the definitions of recession and depression?

It seems that most Americans right now think we're either in a recession or a depression. According to a recent Gallup poll conducted Sept 26-27: 36% of Americans polled believe we're in a recession and 33% believe we're in a depression.

But what exactly constitutes an economic recession or an economic depression?

An economic recession is defined as 2 quarters of negative economic growth as measured by GDP.

An economic depression is when the economy has negative growth of 10% or more.

These definitions are common rules of thumb used. It appears that there isn't an official agreed upon technical definition for the terms. But these are the common definitions used.

According to the BEA: The 2nd quarter of 2008 the US economy grew 2.8% and the 1st quarter of 2008 we grew 0.9%. So we haven't yet hit a recession or depression as far as the current data shows. Its possible that in the 3rd quarter there might be negative growth but we won't know that until the figures come out. According to the BEA release schedule, the advance figures for 3rd quarter GDP growth are due out October 30th.

A depression is a pretty severe event and we haven't hit 10% loss in economic growth for over 70 years since the 1930's when the Great Depression occurred.


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