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One free scan finds every outdated or missing driver and matches the right update for your exact hardware.Free scan · exact hardware matchA recession is a significant decline in economic activity that spreads across the economy; a depression is a common term for a particularly severe period of economic weakness. In the United States, the National Bureau of Economic Research (NBER) dates recessions from an economic peak to a trough, but it does not classify depressions as a separate category or set a numerical threshold for one.
What is the difference between a recession and a depression?
| Question | Recession | Depression |
|---|---|---|
| Status in NBER’s U.S. chronology | A dated contraction from a business-cycle peak to a trough. | Not a separate formal category in NBER’s chronology. |
| Usual meaning | A significant decline in economic activity that spreads across the economy. | A particularly severe period of economic weakness. |
| Official boundary | NBER dates the peak and trough retrospectively using multiple indicators. | No universal official numerical threshold or fixed duration is established in the cited NBER framework. |
| Recovery | An expansion begins after the trough, even if activity has not yet returned to its previous peak. | In common usage, the term may cover the period until activity returns to normal. |
So, a depression generally implies much greater severity than a recession, but there is no official percentage decline or number of quarters that automatically makes a downturn a depression. Some economists use the term narrowly for the falling phase; ordinary usage can also include the time it takes for activity to return to normal. NBER’s business-cycle FAQ describes depression as a term often used for particularly severe economic weakness.
How does NBER decide whether the U.S. is in a recession?
NBER’s definition focuses on a significant decline in economic activity, spread across the economy and lasting more than a few months. Its committee assesses three features together: depth, diffusion (how broadly the decline is felt), and duration. They are not rigid pass-or-fail tests: an especially deep and widespread decline can offset a shorter duration.
NBER dates a recession from a peak to a trough. The peak marks the transition from expansion to contraction; the trough marks the transition back to expansion. Under NBER’s monthly convention, the month after the peak is the first recession month, and the trough month is the last. These turning points are identified retrospectively, not issued as real-time forecasts. NBER’s business-cycle dating procedure explains the committee’s approach.
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Indicators NBER considers
The committee weighs several measures rather than relying on a single headline number. Monthly indicators include real personal income less transfer payments, nonfarm payroll employment, real personal consumption expenditures, price-adjusted manufacturing and trade sales, household-survey employment, and industrial production. For quarterly dating, it considers real gross domestic product (GDP) and real gross domestic income (GDI), along with quarterly averages of key monthly indicators. NBER says it has no fixed formula for assigning weights to these measures. Its FAQ describes the indicators and process.
Do two quarters of falling GDP mean there is a recession?
No. Two consecutive quarters of declining real GDP is a familiar shorthand, not the official U.S. recession test. The Bureau of Economic Analysis (BEA) says that convention is not an official designation. NBER considers multiple indicators, including monthly measures of employment and income, as well as quarterly GDP and GDI. A recession can be identified without two consecutive quarters of falling real GDP; NBER cites the 2001 recession as an example. See BEA’s GDP glossary and NBER’s FAQ.
Why the Great Depression is the standard example
The U.S. contraction from 1929 to 1933 is widely recognized as the country’s worst. An NBER-hosted committee document says that, according to BEA, real GDP fell 27 percent between 1929 and 1933—roughly ten times the decline in the worst postwar recession. That figure illustrates the episode’s exceptional severity; it is not a formal threshold for defining a depression. The NBER-hosted document provides the comparison.
NBER dates the contraction’s peak to August 1929 and its trough to March 1933. It also identifies another severe contraction from May 1937 through June 1938. These historical dates show how NBER records recessions; they do not create a separate official category for depressions. NBER’s FAQ lists these episodes.
When does a recession end?
A recession ends at its trough, when the economy moves from contraction into expansion. That does not mean output, employment, or other activity has already regained its pre-recession level. The expansion begins as activity turns upward; returning to an earlier peak can take longer.
NBER’s data page lists a peak in February 2020 and a trough in April 2020 for the most recent U.S. recession shown there. Those are historical dating decisions, not a current forecast. For the latest chronology, consult NBER’s business-cycle dates.
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Does the same definition apply in every country?
This explanation describes the U.S. framework associated with NBER’s business-cycle dating and BEA’s economic measures. It should not be assumed that every country uses the same terminology, indicators, or organization to date recessions.
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