What’s the Difference Between a Recession and a Depression?

You’ve probably heard all about economic recessions and depressions. But what do those terms even mean? With so much information and several different things to worry about as professionals, it’s understandable that we don’t always know exactly what certain terms mean. Let’s explore the difference (and relation) between an economic recession and depression.?

By Mariah Flores

As more conversations arise surrounding the growing concerns of a potential recession in the U.S., there’s bound to be financial jargon and language that we don’t quite understand. It can understandably be anxiety-inducing with so many unknowns.

A recent poll conducted by Andrew Seaman , managing editor for jobs and career development at LinkedIn News, showed that nearly two-thirds of respondents were either worried or very worried about their careers due to the ongoing economic uncertainty.

The best thing you can do to actively prepare for a possible recession or any moment of economic uncertainty, both professionally and personally, is to focus on what’s in your control.?

The current economic state may be shaky, but your knowledge of it doesn’t have to be. “Gather facts to protect your financial position. No one can predict the future, and it's important to move calmly and deliberately,” reports CNET .

One thing that’s in your control is educating yourself on the difference between commonly-used terms, such as “depression” and “recession”.?

Recession vs. Depression

Economic Recession

Foremost, when reading any current piece on recession, it’s important to note that no official recession has been announced by the National Bureau of Economic Research (NBER) . NBER tracks periods of economic expansion and contraction in the U.S., retroactively declaring economic recessions.?

However, it’s still good to have a basic understanding of what recession means before it could potentially impact your livelihood. And if you’ve ever googled the term “recession,” you already know that definitions can vary.?

NBER defines a recession as a significant decline in economic activity that is spread across the economy and that lasts more than a few months,” which U.S. News notes is “normally visible in real gross domestic product, real income, employment, industrial production and wholesale-retail sales.’”?

In a simplistic sense, in his LinkedIn Learning course “Economics for Everyone: Understanding a Recession ”, economist and futurist Jason Schenker notes that a recession is a period when few things are happening, including:?

• Job loss goes up
• Unemployment rates rise
• Retail sales go down
• People are spending less
• Some businesses shut down
• Financial investments lose money

He goes on to say that while a recession is a period where the average person might feel a bit more stressed about their career, it’s quite normal.?

“Recessions are a normal part of what's called the business cycle, and the good part about recessions is that they're usually pretty short,” says Schenker. “Most of the time, the economy is expanding, and that's the bigger part of the business cycle, but after the economy's been expanding for a while, a few things happen.”

“[A]nd at some point, there's a trigger, and the economy slows, financial markets go down, and we're in a recession, but again, the recession period is usually quite short, although quite painful compared to the longer expansionary period.”

Past Recessions: If we do happen to enter a recession in the coming months, it wouldn’t be the first time and it's usually triggered by certain events or causes, per Schenker. In 2001, the trigger was a collapsing dotcom bubble . There was the Great Recession from December 2007 to June 2009. Most recently, there was the shortest recession in U.S. history, caused by the onset of the pandemic in 2020.?

Economic Depression

There’s no formal definition of a depression, but try to picture it as a longer, more severe version of a recession.?

Business Insider reports that an economic depression is “typically understood as an extreme downturn in economic activity lasting several years, but the exact definition and specifications of a depression are less clear.”

“Recessions can also be more localized, while depressions can have global reach.”

Now let’s look at another definition.?

“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,” according to Merriam-Webster .?

“Recessions can also be more localized, while depressions can have global reach.”

Even if a recession does strike and leads to a depression, you don’t need to worry about it resembling the scale of the Great Depression. Forbes Advisor says that it’s quite unlikely and lists common characteristics of an economic depression:

• Poor stock market performance
• High unemployment rates
• Rising inflation rates
• Declining home sales
• Increased default rates

Recessions are much more common than a true depression.

An economic recession is part of a cycle that could affect you one day, so make sure you’re actively bolstering your career with the necessary skills , credentials and even specific “recession-proof” professions that could set you up for success later down the road.?

Top Takeaways?

What are the differences between a recession and a depression??

• An economic recession is a decline in economic activity that lasts more than a few months.
• With no formal definition, a depression is described as “an extreme downturn in economic activity lasting several years.”
• Recessions, which can lead to a depression, are much more common than the latter