Recession, Here We Come

I hate to be the bearer of bad news, but there's something I need to tell you: in case you didn't know, the U.S. is in a recession. Yep, it's true. The official announcement was made yesterday. In fact, the government said we've been in a recession since the end of 2007. Thank you Capitol Hill for that breaking news, but I think this is one thing that us working people already knew. I had a couple of requests from you, faithful readers, asking if I could try to explain a recession and depression. Always eager to please my faithful readers, I consulted my college and graduate school microeconomics textbooks and here's what TWIT has to say about a recession:

The media's definition of a recession is a decline in Gross Domestic Product (GDP) for two or more consecutive quarters. Before we go on, let's define GDP -- it's the value of all final goods and services produced in a country in one year. The folks at the NBER (National Bureau of Economic Research) take things a bit farther with their explanation. They look at unemployment, industrial production, real income and wholesale and retail sales, and they define a recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. When business activity starts to rise again, it's called an expansionary period. The NBER defines a depression as any economic downturn where GDP declines by more than 10 percent.

The Great Depression of the 1930's was actually two separate depressions -- an incredibly severe depression lasting from August 1929 to March 1933 where GDP fell by almost 33 percent, a period of recovery, and then another less severe depression from May 1937 to June 1938, where GDP declined by 18.2 percent (the last depression in the U.S.). The worst recession in the last 60 years was from November 1973 to March 1975, when GDP fell by 4.9 percent. The last recession (not counting the current one) was November 2001 to November 2002.

All that having been said, an old joke among economists gives probably the best definition of a recession and depression: a recession is when your neighbor loses his job. A depression is when you lose your job.