Recession, Depression and Growth: How to Evaluate an Economic Cycle?

Economic cycles can change swiftly, at times its years of prosperity and economic growth and then there are recessionary phases. Recessions can be hard to cope with for common masses as companies feel the pinch and lay off employees.Let’s read through the key differences between a recession and a depression, and learn about the economic signs that point towards the end of a recession cycle.

Bothered about financial security, even consumers cut out on spending and the vicious circle begins hampering growth. Well, a recession can be sticky as it takes time to revive confidence among investors, consumers and companies, but it’s still way better than a depression cycle.

Causes and Impact of an Economic Recession

Technically, a recession comes in play when an economic downturn continues for more than two quarters. Such a situation can arise when consumers restrict from spending, leading to higher unemployment and significant drop in corporate profits. This can then lead to lesser investment interest as profits decline and bankruptcies increase drastically.

A recession is triggered after an economic shock, which may be a bubble burst in some asset class. The Great Recession which we faced in 2008 was a consequence of the housing bubble burst. Many of us ‘Young Investors’ have seen the tech bubble burst in 2011, which led to a recession in those days.  Then there was the recession in the mid seventies, which was triggered by the oil price rise, excessive spending on war funding and a dramatic Wall Street crash.

How is an Economic Depression Different?

A depression is the most feared word in the world of economics. It is a phase when economic growth tumbles for a much longer timeframe than a recession. Even the unemployment rate is way too higher, and it leads to a situation where personal finances deplete and consumer spending almost freezes.

When we study the Great Depression on 1930’s, the data clearly tells the real story of how much more dreadful it can be than a recession. Study reveals that the stock market crash in 1929 was the panic event which triggered the great depression.  So far, the US economy has not witnessed anything of that magnitude. Economists believe that the recently experienced recession in 2008 was the second biggest economic downturn in US history. Some individual studies ‘Nothing Official’ suggest that the Great Depression cycle was over extended by a recession cycle in late 1930’s.

How to know that a Recession has ended?

Converse to identifying a recession cycle its end can be confirmed when economic activity rebounds and there is economic growth for two quarters or more in a row. This recovery should include jobs growth followed by improvement in consumer spending reflecting consumer confidence and a stable growth in business investments.

However, there is an official body ‘The National Bureau of Economic Research’, which has the authority to mark the start and end of a recession cycle. The Bureau may call an end to a recession based on their set parameters, but the real feel on the streets may be entirely different. Also remember there is always a possibility of a double-dip recession as the economic climate after a recession remains jittery.

Also Read:-

How will the US Economy Shape Up in the Ongoing Global Recovery? Is the Recovery Process Self-Sustainable?

US Market Crash: What should I do now?

The Recession that never was! Are you prepared for Economic Depression in the 21st Century?

Will the Current Debt Crisis Change the American Way of Life for Ever?

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