Depression Watch 2009

As of March 2009, the U.S. economy is not in a depression, though is in a recession. But how far away is it from a depression? Is this the closest the U.S. has come to a depression? In order to answer these questions, we will first need to define a recession and a depression.

Definition of a Recession: The article Recession? Depression? What's the difference? defines a recession as "a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters".

Definition of a Depression: The same article defines a depression as "any economic downturn where real GDP declines by more than 10 percent".

In 2008 the U.S. economy experienced two consecutive quarters of decline in Gross Domestic Product. But as we will see, with the aid of data from the Bureau of Economic Analysis (BEA), that so far the decline has been nowhere near 10 percent - that is, the U.S. economy is not currently in depression territory.

The Current U.S. Recession Compared to Past Recessions

Time Period: Percent Drop in Real GDP
Depression Threshold: -10.000 percent
1957 Q4 - 1958 Q1: -3.746 percent
1981 Q4 - 1982 Q1: -2.865 percent
1953 Q3 - 1954 Q1: -2.655 percent
1974 Q3 - 1975 Q1: -2.537 percent
1980 Q2 - 1980 Q3: -2.181 percent
1949 Q1 - 1949 Q2: -1.785 percent
2008 Q3 - 2008 Q4: - 1.754 percent
1990 Q4 - 1991 Q1: -1.262 percent
1969 Q4 - 1970 Q1: -0.640 percent

Notes:

1. Quarterly data provided by the Bureau of Economic Analysis and is available for 1947 to present (Q4 2008).

2. The above chart uses the "decline in the Gross Domestic Product (GDP) for two or more consecutive quarters." definition of a recession. Using this method understates the number of recessions assome downturns will not have two consecutive quarters, such as the 2000-2001 period. As well, it can also understate the severity and length of recessions, for the same reason. However, it does provide a useful benchmark to compare recessions to one another.

3. This chart underestimates the severity of the current downturn. As it takes time to collect the data, it does not show where the U.S. economy is currently (March 2009), rather it shows where the U.S. economy was as of December 2008. When the 2009 1st quarter figures are released, it will likely show another percent to percent-and-a-half drop in GDP, which would make this the 2nd worst recession on record after only the 1957-58 recession. Even after those statistics are released, it still may underestimate the current recession as there is no guarantee that economic growth will be positive in the 2nd quarter of 2009.

The U.S. economy has a long way to go until it hits a depression - at least, according to our definition of a depression. The BEA has yearly data for U.S. GDP stretching back to 1929. With this data, there is one U.S. depression on record.

Past Depressions

Time Period: Percent Drop in Real GDP
1929 - 1933: -26.549 percent
Depression Threshold: -10.000 percent

It is important to note that the Great Depression truly was great in magnitude. It is important to realize that not all depressions have been (and will be in the future) like the Great Depression - they can be far less severe. If the U.S. experiences an economic decline of 10 or 12 percent during this recession, it will cause real hardship for many - but it will be nowhere as dramatic as the events of the early 1930s.

In Conclusion: A Bad Recession, But Still Far Away From Depression

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