Are we in a recession or economic depression? What’s the difference, and why it matters

One thing is for certain: The coronavirus is bad for the economy. Some experts say that we’re already in a recession, while others forecast an economic future more dire than anything we’ve seen since the Great Depression. But what do “recession” and “economic depression” even mean, and what do they mean for your finances? 

As layoffs continue to push as many as 16.8 million US workers into unemployment and companies begin to suffer, it’s important to educate yourself and prepare. How we label the current economic crisis — and it’s definitely a crisis — affects how we respond to it, from the leaders of government and finance down to individuals like you and me. 

To help put the current economic climate into perspective, here’s a look at what financial experts typically mean when they use terms like recession and depression, as well as what you can do to support yourself, your community and the national and global economies during this trying time.

Recession versus depression: What’s the difference?

Recession: Most experts agree that a recession happens when the economy shrinks for at least two fiscal quarters in a row — in other words, six months. This is measured by gross national product, or GDP, which is a number that represents the total value of goods and services produced within a country — every car built, every hamburger sold, every lawn mowed and so on. A recession, then, is a period of at least six months when that number goes down instead of up. When GDP climbs back to prerecession levels, the recession is over.

Depression: A depression is far more uncommon and longer lasting. For example, in the last 166 years, there have been 33 recessions and only one depression. Think of a depression as two or more recessions linked together with no economic recovery in between. The Great Depression of the 1930s is the most recent and well-known example. Economic depressions last years as opposed to months.

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The take-home lesson here is that a recession can’t be defined until at least half a year has passed, and a depression can almost never be identified until after it’s happened. 

So, what do we call the not-so-great economic state that we’re in? What can the government do to fix it? Or individuals? And where do you go if you need financial help?

Let’s zoom in on the current crisis and take a look.

What’s our current economic situation?

Technically, we’re in an economic downturn right now, but that could change. Economic downturns are a normal, regular part of a healthy economy that ebbs and flows, with periods of growth followed by periods of contraction.

What makes this downturn different is that it’s caused by the coronavirus, through the closure of nonessential businesses and high unemployment — not through a natural economic shift or cycle. Until it’s considered safe enough to open businesses and factories, the economic conditions are expected to worsen. 

A leveling off of the pandemic by either a SARS-CoV-2 vaccine or an effective treatment for COVID-19 (or both) may be the most obvious solution, and that will take time.

How the government is trying to bolster the economy and avoid recession

The recent $2 trillion stimulus package represents the US government’s first attempt at thwarting a recession, but we won’t be able to measure its impact for some time. The economic relief law includes stimulus payments of up to $1,200 for most US taxpayers, as well as a loan program for businesses to be able to keep paying their employees.

The Federal Reserve recently indicated it will continue to hold interest rates close to 0% for the foreseeable future, which often has the effect of encouraging more borrowing, which leads to more spending, and that generally improves the economy.

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Finally, doctors and scientists are racing to develop either a SARS-CoV-2 vaccine, a COVID-19 treatment or both. Human trials of a potential vaccine are slated to begin in mid-May, but it may still be another year or longer before anything is approved for widespread use.

What can I do to help out?

It’s easy to feel helpless, but there are ways to make a difference. My CNET colleague Katie Conner has some excellent recommendations for things you can do to help your local community and businesses, including no-cost contributions like online volunteering or donating blood, as well as ordering take-out or delivery, and buying restaurant gift cards. 

Other local businesses like bookstores, gardening centers, toy shops and boutiques may have a website where you can order and possibly even save on shipping costs by picking up curbside.

The best advice I’ve heard so far about how you can individually help prop up the economy is this: Spend to the best of your ability and within your means.

What if I need help?

If you’ve suffered financial hardship as a result of the coronavirus pandemic, here are some resources you can turn to for help: