The difference between a depression and a recession is difficult at best because it has no black and white definitions among economists. They are extremely hard to pinpoint because the quarterly rate disallows when the recession begins or ends, which unfortunately has some recessions going undetected throughout the history of the United States.
Presently, the United States Bailout Rescue Plan which is being fought over in our government will be followed by a recession or a depression. This will depend on what the vote is, whether the plan rescue our country enough to be followed by a recession, with a possible depression following no action at all.
Definition of RECESSION
Generally a recession involves a serious drop in the Gross Domestic Product (GDP) of quarters that last over two consecutive quarters, yet disregards any changes in the unemployment rate. A recession also refers to the economy's amount of business activity-employment, industrial production, real income, and wholesale or retail sales. More specifically, this period involves the time frame when business activity peaks until this same activity hits bottom. Whenever the business activity begins to rise, it is called the expansionary period, with the average recession lasting approximately a year.
Definition of DEPRESSION
We think of an economic depression as similar to the Great Depression of the 1930s, but prior to this period, the word depression referred to any change in economic activity. More accurately today, depression refers to a recession that lasts quite a bit longer than normal, and consists of a steeper decline in business activity. The changes in the GDP determine whether the economic period is a depression or a recession, with more dramatic drops and rises in the depression period for longer periods of time.
Statistical DIFFERENCES between a DEPRESSION and a RECESSION
To begin the differences between the economic depressions and recessions, we need to look at the economic changes where the real GDP drops. This drop usually is over 10 percent, whereas a recession is under that statistic and is considered less severe. During the period of the Great Depression in August 1929 to March 1933, the GDP was close to 33 percent. With a slight recovery period, another less severe depression occurred from 1937 to 1938 with a GDP of 18.2 percent. Nothing in the United States has been that bad since that period in history.
The Stock Market
Once the economy activity of the United States begins to drop, things that generally hold up well in the stock market are pharmaceuticals, tobacco, and financial services. But once the economy begins to climb back up, things that do better upon financial recovery are growth stocks-stocks that yield a high return on equity and will appreciate in its value. This is figured by analysts who take the company's net income and divide it by the company's equity along with their shareholder's equity, or rather the value of the company's ownership and in property.
Typically, recessions in the United States are usually preceded by a weakened real-estate market and stock market declines, although it has been shown that ten stock market declines over 10% in the Dow Jones Industrial Average were not followed by a recession. Also, real-estate declines have been shown to last for longer periods than did the recessions.
Business activity on an economic level may be affected by recessions in the U.S., even though it is known that diversifying an investment portfolio into more of an international stock diversion can provide a safety net on some levels. The individuals involved in recessions have a tendency to blame the entire administration for the economic drop, and it is true that government activity does influence the recession to some degree.
With this in mind, the administrations on a governmental level attempt to soften the recession with certain steps, even though the recession cannot be avoided. And in many circumstances, recessions cannot be avoided as the economy is not a perfect innuendo.
Even though the average American citizen feels recessions are too harsh for their ears, the word depression conjures up entirely different feelings, so many economists refer to this period as a slowdown in economics. Basically the United States has been free of major depressions since the Great Depression, but varying business cycles are part of the economic world.
