Glossary · Economy
Depression
A depression is an unusually deep or long recession: output falls far more than in a normal downturn, unemployment soars, and recovery takes years.
Also called: economic depression, slump
Real GDP per person in the Great Depression (Maddison Project). Back to the 1929 level in 1940.
S&P Composite, monthly averages.
Prices fell too: deflation.
In plain words
A recession is the economy going into reverse for some months. A depression is the same thing on a frightening scale: factories close for years, millions lose their jobs, banks fail, and the recovery takes a decade.
There is no official line between the two. A common rule of thumb calls it a depression when real GDP falls more than 10%, or when a downturn lasts more than about three years. Since the 1930s no US downturn has been called a depression: in the longest, in 2008–09, real GDP fell 3.8%, and the sharpest, in 2020, lasted just two months.
From 1929 to 1933, US output per person fell 33%. Unemployment reached about a quarter of the workforce in 1933. Output per person did not get back to its 1929 level until 1940.
Example
How deep is deep?
Compare three US downturns on the same yardstick.
- A typical postwar recession: output dips a few percent and is back at its old peak within about two years.
- The 2008–09 financial crisis, the longest recession since the 1930s: real GDP fell 3.8% from peak to low.
- The Great Depression: output per person fell 33% from 1929 to 1933 and took 11 years to recover.
That is why “depression” is kept for the rare, catastrophic cases.
One level deeper
What turned a downturn into a depression in the 1930s? Economists point to a chain of failures: the stock market crash of 1929, thousands of bank failures that wiped out savings and lending, a money supply that shrank by about a third, falling prices (deflation) that made debts heavier, and a collapse in world trade as countries raised tariffs.
It was worldwide. From 1929 to the low, output per person fell 33% in Canada, −17% in Germany, −16% in France and −7% in Britain.
Countries recovered after they left the gold standard and let money and prices rise again: Britain in 1931, the US in 1933. The lessons shaped modern policy: central banks now pour money into the system in a crisis, and deposit insurance, created in the US in 1933, stops most bank runs.
US output per person, 1900–1960
Real GDP per person, year by year. The Great Depression is the deep valley after 1929; the Second World War boom follows it.
The numbers behind the chart
| Date | Real GDP per person |
|---|---|
| 1900 | $8,038 |
| 1910 | $9,637 |
| 1920 | $10.2K |
| 1930 | $10.7K |
| 1940 | $12K |
| 1950 | $15.2K |
| 1956 | $17.4K |
| 1957 | $17.4K |
| 1958 | $16.9K |
| 1959 | $17.9K |
| 1960 | $18.1K |
Why it matters
Depressions change history: the 1930s brought mass poverty, political upheaval and, in many countries, unemployment insurance, pensions and the modern rules for banks.
Fear of a repeat explains how governments and central banks react to crises today: fast rate cuts, emergency lending and big spending, as in 2008 and 2020.
For investors it was the worst of times: US stock prices fell 85% from Sep 1929 to Jun 1932.
A common mistake
Myth: The Great Depression was just the 1929 stock market crash.
In fact: The crash was the opening act. Most of the damage came later, from waves of bank failures, falling prices and shrinking trade between 1930 and 1933. US output per person hit its low in 1933.
Questions people ask
What is the difference between a recession and a depression?
Size and length. A recession is a broad decline lasting months; a depression is one so deep or long that output falls by around a tenth or more, or stays low for years. Every depression is a recession; few recessions become depressions.
When was the last depression?
In the US, the Great Depression of the 1930s is the only one in modern times. Other countries have had depressions since: Greece lost about a quarter of its output after 2008.
Could a depression happen again?
It is possible but much less likely: deposit insurance, central banks lending freely in a panic, and automatic support such as unemployment benefits now cushion the fall. The 2020 pandemic drop was as sharp as a depression’s but far shorter.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US recessions (NBER business cycle dates): National Bureau of Economic Research (NBER), Business Cycle Dating Committee: US Business Cycle Expansions and Contractions.
- GDP per person (Maddison Project): Maddison Project Database, version 2023, by Jutta Bolt and Jan Luiten van Zanden, Groningen Growth and Development Centre, University of Groningen.
- Consumer price index, all items (CPI-U), not seasonally adjusted: U.S. Bureau of Labor Statistics, Consumer Price Index, series CPIAUCNS; retrieved from FRED, Federal Reserve Bank of St. Louis.
- Real gross domestic product: U.S. Bureau of Economic Analysis, National Income and Product Accounts, series GDPC1; retrieved from FRED, Federal Reserve Bank of St. Louis.
- S&P Composite price and total return since 1871, and US consumer prices: Robert J. Shiller, Online Data (shillerdata.com); total return with dividends reinvested monthly, calculated by BigCapital.
- Historical GDP estimates for the 1920s and 1930s are reconstructions (Maddison Project), less precise than modern national accounts.
- This page explains a term. It is not investment advice.