Quezi

Recession Special (photo by aturkus - CC-BY)

According to Suzanna De Baca, a recession is when your neighbor loses his job and a depression is when you lose your job.

On a more serious note, the terms “recession” and “depression” are defined differently by different people and organizations. Recently it has become common to consider a recession to be two consecutive quarters in which the GDP (Gross Domestic Product) experiences negative growth, i.e. it contracts.

This is a rather loose definition. Consider what happens if growth of the GDP is almost zero, except in March and April when it drops significantly. That counts as a recession, because the statistical quarters are Jan/Feb/Mar and Mar/Apr/May. But if the same drops occurred in February and March instead of in March and April, it would no longer count as a recession because negative growth of the GDP only occurred in one quarter.

Nevertheless this poor definition of a recession is commonly used, perhaps because it’s just a label and no-one can agree on a more rigorous definition.

By any definition, a depression is a very serious recession. It could be considered to be a recession that lasts for some years, or it could be an overall drop of 10% or more in the GDP. There’s not much point agreeing on a rigorous definition of a depression, because it’s something that happens once or twice a century, and every time is different.

Here’s some discussion about specific recessions and depressions in various countries, and how they were defined.

It turns out that in the US the National Bureau of Economic Research does in fact declare whether or not a recession is underway, and they don’t require two consecutive quarters of decline, although they look for something “lasting more than a few months”.