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short essays and reports on the economic issues of the day
2009 ■ Number 15

Recession or Depression?
Kevin L. Kliesen, Economist
n December 1, 2008, the Business Cycle Dating
Committee of the National Bureau of Economic
Research (NBER) determined that a peak in U.S.
economic activity occurred sometime in December 2007.
Although we have few insights about the eventual duration and
depth of the current recession, many prominent economists,
policymakers, and business leaders have asserted that the
current recession will be the worst since the Great Depression.
While parallels with the 1930s appear misplaced, it is certainly
possible that the current recession might be as severe as any
experienced since then.


“Although the current recession may…
be the longest in the postwar period,
it is by no means certain that it will
be the deepest, but it’s increasingly
looking that way.”

rent recession will be considerably longer than that: As noted,
the NBER determined that the most recent business cycle peak
occurred in December 2007, which was about 16 months ago
at the time of this writing. Moreover, the latest consensus forecast from the Federal Reserve Bank of Philadelphia’s Survey
of Professional Forecasters (SPF) predicts negative growth in
real GDP through the second quarter of 2009; most Federal
Reserve governors and presidents believe that a return to positive growth is likely in 2009, but not until the third or fourth
If a trough does occur sometime during the third or fourth
quarters of 2009, then the 2007-09 recession will have been
between 20 and 25 months in duration. In that case, the current recession will indeed have been the longest since the 43month contraction experienced from August 1929 to March
1933. The next-longest recessions in the postwar period were
16 months, for both the 1973-75 and 1981-82 recessions.
Although the current recession may indeed turn out to be the
longest in the postwar period, it is by no means certain that
it will be the deepest, but it’s increasingly looking that way.

The U.S. recessions of 1973-75 and 1981-82 are generally
seen as the most severe in terms of both their depth and their
duration. However, those recessions were still mild compared
The most conventional method of measuring a recession’s
with the 20th century’s worst economic calamity—the Great
depth is to calculate the percentage change in real GDP or
Depression of 1929-33. To properly determine whether the
the percentage-point change in the unemployment rate from
current recession is comparable to any of these previous
the peak to the trough. The table shows the average values
episodes requires some judgment not only
about the actual and expected depth and
duration of the current recession, but also
Measures of Recession Depth and Duration
about what variables are used to measure
depth and duration.1
Duration (months)

Real GDP

Real GDI

Average, 1948-2001





Current episode













It is normal for the U.S. economy to
grow—that is, to see increases in measures
of economic activity such as real incomes
and expenditures. During the post-World
War II period, the average business expansion has lasted 57 months. Recessions,
while not uncommon, are relatively
short—with an average duration of 10
months. It appears, however, that the cur-

Current + SPF forecast
Great Depression

Unemployment rate

NOTE: Depth measures the average percent change from peak to trough for real GDP and real
GDI and the average percentage-point change from trough to peak for the unemployment rate.
Changes in real GDP and real GDI during the Great Depression are based on annual data.
SOURCE: Author’s calculations based on quarterly data.

Economic SYNOPSES

Federal Reserve Bank of St. Louis

for all recessions since the 1948-49 recession. It also shows
the equivalent income-side measure of real GDP, real gross
domestic income (GDI), because the NBER notes that this
value was important in establishing this recession’s December
2007 peak.3 (Note: In the table, the peak-to-trough changes
in real GDP and the unemployment rate are based on actual
peaks and troughs for each particular recession episode, rather
than the official NBER-determined peak and trough quarters.
Although the peak and trough quarters for real GDP line up
closely with the NBER dates, the actual peak and trough dates
for the unemployment rates can be considerably different from
the NBER dates.4)
During the post-World War II recessions, the mean decline
in real GDP is 2.1 percent, the mean decline in real GDI is
2.2 percent, and the unemployment rate rises by an average of
2.9 percentage points.5 The second line of the table provides
comparable measures for the current episode. Although the
NBER dated the business cycle peak in the fourth quarter of
2007 (December), the actual peak in real GDP did not occur
until the second quarter of 2008. While significant, the 1.75percentage-point drop in real GDP through the fourth quarter
of 2008 for the current recession is modestly less than its postwar average. Real GDI peaked in the third quarter of 2007,
but the decline since then has been fairly modest (a little more
than one-third of a percentage point). By contrast, the unemployment rate reached its trough of 4.4 percent in the fourth
quarter of 2006, and it has subsequently risen to 8.1 percent
in February 2009. This increase, 3.7 percentage points, is nearly
1 percentage point larger than the normal increase in the
unemployment rate seen during postwar recessions (2.85 percentage points). For purposes of comparison, the unemployment rate rose from 7.4 percent to 10.7 percent during the
1981-82 recession and from 4.8 percent to 8.9 percent during
the 1973-75 recession. Thus, parallels between the current
recession and the 1930s appear to be driven more by labor
market conditions than actual declines in output. Of course,
the other side of this story, which does not receive much attention, is that labor productivity growth continues to be relatively
strong during this recession.6
The third line of the table shows the peak-to-trough changes
based on quarterly SPF forecasts published in February 2009.
(Forecasters are not asked to forecast the growth of real GDI.)
The SPF projects that the trough of real GDP will occur in
the second quarter of 2009, with a projected peak-to-trough
decline of 2.8 percent. This decline would be modestly larger
than the average of all episodes (–2.1 percent). Given that the
growth of real GDP during the fourth quarter of 2008 was
revised from –3.8 percent in the advance estimate to –6.2 per-


cent in the preliminary estimate, it seems possible that SPF
forecasters might now forecast a deeper and longer recession.7
Indeed, if forecasters are correct that real GDP will decline at
about a 5 percent annual rate in the first quarter of 2009, then
the cumulative rate of decline in real GDP over the six months
ending in March 2009 would be the second- or third-largest
two-quarter rate of decline in the postwar period.
The SPF also forecasts that the unemployment rate will rise
to an average of 9 percent in the first quarter of 2010. This
level would produce a peak-to-trough increase in the unemployment rate during the current recession of 4.6 percentage
points.8 In contrast to real GDP or real GDI, this rise in the
unemployment rate would be the largest of all the postwar
recessions. However, it would still fall far short of the 1929-33
episode, when the unemployment rate rose from 0.8 percent
in July 1929 to 25.4 percent in March 1933 (an increase of
24.6 percentage points).9
It seems highly likely that the current recession will be the
longest in the postwar period, at slightly less than two years
according to the consensus of professional forecasters. Moreover, the 2007-09 recession may even be deeper than the
average of all postwar recessions. However, parallels with the
downturn of the 1930s are sorely misplaced—at least as measured by the actual and expected decline in real GDP, real GDI,
or the rise in the unemployment rate. ■
Hall, Robert E. “How Much Do We Understand about the Modern Recession?”
Brookings Papers on Economic Activity, 2007, 2, pp. 13-28.

One way to gauge the severity of the recession is by comparing its duration
with other recessions. Another way is to measure its depth, by looking at the
decline in real GDP (or rise in the unemployment rate) relative to what would
be expected during normal periods (expansion).


Survey of Professional Forecasters, February 13, 2009; minutes of the
January 27-28, 2009, FOMC meeting.



4 The terminology is switched for the unemployment rate, since the unemployment

rate rises during recession (a trough occurs before the business cycle peak).

Excluding the largest and smallest changes from the 10 observations produces
little change in the averages.


Hall (2007) argues that this is a feature of recessions since 1990.


Indeed, the Blue Chip Consensus forecast released on March 10, 2009, increased
(in absolute terms) the peak-to-trough decline in real GDP from 2.7 percent to
3.5 percent.


In the February 17, 2009, SPF, the quarterly forecast horizon extends only to


The NBER dated the peak in August 1929, but the unemployment rate is not
available for that month. Instead, the table shows the percentage-point change
from July 1929 to March 1933.

Posted on March 23, 2009
Views expressed do not necessarily reflect official positions of the Federal Reserve System.