We all felt it. In fact, many of us are all still feeling the effects of it even now almost a decade later. The impact of what is now called the Great Recession of 2008 still reverberates today. Home values fell off a cliff, waves of foreclosures hit the market and the unemployment rate topped 10 percent for the first time in nearly 25 years. 2008 initiated a very bad period for the U.S. economy. How bad was it?
What is a recession?
Officially, our economy is in a recession when the Gross Domestic Product (GDP) shrinks for two consecutive fiscal quarters. The GDP is the total market value of all goods and services produced. Unofficially, however, a recession can simply be described as an extended period of sluggish economic growth and a reduction in economic activities.
Tracking the GDP gives economists a measure on how the U.S. economy is performing as a whole. When the GDP shrinks — what economists call “negative growth” — the economy is moving backward, not forward. However, a one-quarter shrinkage in growth could be a statistical anomaly. It takes two consecutive quarters of negative growth (that’s six months) to convince economists what most consumers usually already know: The economy is in terrible shape.
In economic terms, a depression is a very severe recession. Here are the two ways we technically define the tipping point between a recession and a depression. Only one needs to be met to report a state of depression:
The amount the Gross Domestic Product needs to decline 10%.
8 Quarters of consecutive negative growth (compared to 2 for a recession).
How does the Great Recession compare with the Great Depression?1
Now that we’ve established the differences between a recession and a depression, we can start looking at the differences and similarities between the Great Depression of the 1930s and the Great Recession we recently experienced in the late 2000s.
57 bank failures in the Great Recession representing 0.6% of all banks.
9,000+ bank failures in the Great Depression, representing 50% of all banks nationwide.
Remember however those banks in the 1920s and 1930s were mostly smaller, community banks and not the national mega-banks that failed in the Great Recession.
During our most recent recession, unemployment topped 10% very briefly before falling back to 8.5%.
The unemployment rate in the Great Depression hit 25% at its height,
During the Great Recession, the Dow lost about 50% of its value before recovering.
The Dow Jones Industrial Average lost nearly 90% of its value during the Great Depression.
Emergency spending programs
During the Great Recession, the federal government spent 2.5% of GDP for 2 years.
The federal government spent 1.5% for 1 year during the Great Depression.
While there’s little consolation for those unemployed today or who have lost their homes to foreclosure, the differences between the Great Depression and the Great Recession demonstrate that, while somewhat similar in nature, they were vastly different in degree.
As one out of four people were unemployed and half of all the banks in the United States failed, the Great Depression was definitely far worse than our recent recession.
This doesn’t decrease the severity of our recent downturn. Even though there are signs of an economic upturn in recent years, many Americans are still feeling the effects of the Great Recession.