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December 25, 2008

Recessions and depressions

We're hearing two words to describe the condition of today's economy: recession and depression. How do economists distinguish between these two events?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, first of all, we just had announced by the group that makes these calls - it's a group that sits outside the federal government - that we are, indeed, in a recession. And we've been in a recession since December of 2007. Now, the difference, however, between a recession and a depression is really a matter of degree. And economists somewhat arbitrarily have divided the two. A recession occurs if the economy shrinks by less than 10 percent. A depression occurs if the economy shrinks by more than 10 percent. Now the last recession we had in 2001, the economy shrunk by one-half of 1 percent, clearly in the recessionary category. This recession, of course, is not over. Many economists think it will last well into 2009, but the current thinking is that it will cause the economy to shrink somewhere around 3 or maybe 4 percent, again still far short of a depression. So I think we can at least as we sit now, throw out the possibility of this downturn being categorized as a depression."

Posted by Dave at December 25, 2008 08:00 AM