What is the difference between a recession and a depression?

You might have heard the phrase “what goes up must come down.” The same can apply to the economy. Throughout U.S. history, there have been times of growth and high employment that coincided with other indicators that the economy was in a position of strength. But there have also been times when the economy has contracted, such as during the Global Financial Crisis – also known as the Great Recession – which started in 2007, and the Great Depression, which started in 1929 and lasted for over 10 years.

Each of these events had a substantial impact on the economy and many Americans’ finances. However, they were different in scope and scale.

This brings us to the question: What’s the difference between a recession and a depression? In this guide, we’ll cover the distinctions between a recession and a depression and how to prepare your finances for future downturns.

What is a recession?

A recession refers to a period lasting at least a few months in which economic activity declines significantly. A common benchmark used to indicate a recession is two consecutive quarters with negative GDP, which refers to economic growth, a leading indicator of economic output.

However, this isn’t the official stamp of a recession in regards to the U.S. specifically. In fact, a range of experts from the NBER are the ones to make the call about whether the country is officially in a recession or not.

What causes a recession?

A few things that are likely to happen in a recession are that unemployment increases and economic activity decreases. But, what causes recessions can differ. Some common causes of a recession can include:

A strong economy requires many elements to work together harmoniously. Changes in that balance can lead to a recession, but when that is and how it starts can be tough to predict.

How to know if the economy is in a recession

When it comes to deciphering if the economy is in a recession, Carter Griffin, a J.P. Morgan Wealth Management Global Investment Strategist, says that it’s more than just assessing “vibes.” “Make sure to look deeper than the headline,” he notes. “It’s important to look at how weakening consumer sentiment is translating into actual behavior.”

A common definition of a recession that floats around is that it’s declared following two consecutive quarters of negative GDP growth, although that’s not accurate. The NBER – which defines recessions in the U.S. – makes the call about whether the country is in a recession or not by looking at the following indicators (among others):

What were some of the recessions in U.S. history?

Recessions are a natural part of the economic cycle. If you’re wondering when the last recession was in the U.S., it was at the start of the COVID-19 pandemic. Though it had a major effect globally, it technically only lasted for two months from February 2020 to April 2020.

You might remember that the pandemic was officially declared in March 2020, so how did the recession start in February? According to the NBER, recessions begin in the month following a peak in the business cycle.

Recessions end at what’s called the “trough,” which is the low point before economic recovery kicks in.

Based on NBER data, here’s an overview of some of the recessions in recent U.S. history.

The COVID-19 recession: February 2020 to April 2020

Fueled by the global pandemic, this recession only lasted two months despite its reverberations in the economy for much longer. Starting in February 2020 and ending in April 2020, this recession led to a 14.7% unemployment rate in the U.S., with millions losing their jobs as businesses shuttered at the start of this crisis.

Global Financial Crisis: December 2007 to June 2009

The Global Financial Crisis, also known as the Great Recession, was driven by a housing crisis and resulted in major financial turmoil for the markets, businesses and consumers alike. The U.S. unemployment rate at the start of this recession was 5% and climbed to 9.5% at the end of the recession. Despite its official end, unemployment actually peaked in October 2009 when it hit 10%.

Dot-com bubble recession: March 2001 to November 2001

Internet and tech businesses took off in the 1990s, leading to high stock market valuations – some of which were thought to be overvaluations. This bubble eventually burst as interest rates rose, and investors started to panic-sell stocks, leading to a sharp decline in the value of publicly traded dot-com companies.

While these are the last three recessions, other recessionary periods in the U.S. include:

What is an economic depression?

An economic depression refers to a period with substantial declines in economic activity and increases in unemployment. While there isn’t a standard definition for a depression, the main differences between a recession and a depression are the severity and the length of the events.

Some consider it a depression if GDP has a steep decline of more than 10%. Additionally, economic depressions can be more widespread and may have a global impact.

What were some of the economic depressions throughout history?

The U.S. Great Depression, which started in 1929 and ended in 1941, is considered one of the more notable depressions in history. It lasted for more than a decade, which far exceeds the couple of months or years that recent U.S. recessions have lasted. The financial impact was also devastating for many. According to the Federal Reserve Bank of St. Louis:

A major cause of the Great Depression was the 1929 stock market crash. On October 28, 1929, the Dow Jones Industrial Average dropped close to 13% in what’s often referred to as Black Monday. The next day, on what’s typically called Black Tuesday, another drop of 12% occurred.

In a short amount of time, the Dow lost close to half of its value. It took until 1954 for it to recover to where it was pre-crash.

The Great Depression wasn’t the first depression to hit the U.S. The Panic of 1873, later renamed the Long Depression, occurred from 1873 to about 1879. After a stock market crash in Europe, investors began to move away from putting money into American infrastructure projects like railroad companies.

This caused a lending crisis, and many companies went bankrupt. That had a domino effect hurting banks, leading to consumer panic and a run on the banks. Ultimately, it led to 100 banks failing.

How do you know if the economy is in a depression?

If there is a long-lasting and steep decline in economic activity, that could mean there is a depression. However, it’s important to note that the NBER doesn’t identify depressions separately from recessions.

When thinking of what a future depression could look like, many use the Great Depression as a benchmark, meaning it could involve double-digit unemployment and reductions in GDP similar to those that occurred in the Great Depression.

Similarities and differences between a recession and a depression

Recessions and depressions likely result in elevated levels of unemployment and lower economic activity. Both may be caused by supply shocks, stock market crashes or monetary policy. While similar, there are notable differences between a recession and a depression.

How to prepare your finances for a recession or a depression

Recessions or depressions can have a major impact on the economy and your personal finances.

In these times of uncertainty, some may be wondering when the next recession will hit. It’s important to note that J.P. Morgan Wealth Management’s investment strategists are watching indicators, and as of June 2025, nothing is indicating that the U.S. is heading for recessionary territory.

“So far, hard economic indicators, like consumer spending, have shown continued resilience despite the weakening sentiment,” Griffin said. “Tariffs could cause a moderation of U.S. growth and result in higher inflation. We will be watching to see if this compresses corporate profit margins or leads to a pickup in layoffs.”

Still, preparing for the possibility – or having an awareness of the possibility – won't hurt. You may want to start by increasing your cash cushion. The standard advice is to save three to six months of emergency savings. Consider boosting that to a year’s worth of expenses to act as a shield if you feel particularly concerned about a potential recession.

You may also want to revise your budget and lower your expenses. Additionally, you may want to review your investments with a professional to better understand your risk tolerance and rebalance as needed.

The bottom line

Recessions and depressions both impact the economy, but the main difference between them is the severity. Depressions tend to be much more severe and drag on much longer than recessions. Though no one knows for sure if a recession will come in the near term, they are a natural part of the economic cycle, and getting prepared may help you be in a stronger position for whenever one hits.

View Disclosures