The worst kept secret was finally confirmed earlier this week: The United States is officially in a recession.
Though it’s not particularly happy news, it’s not something that was unexpected. Unemployment is currently the highest it has been since the Great Depression, and while the COVID-19 pandemic is indeed an event that is dictating the economic ebbs and flows, the big concern is whether or not this recession eventually transitions into a depression.
In this post, we thought we’d take a look at our current economic times, what the likely end game is and why we’re unlikely to fall deeper into a depression. Here’s a look:
Recession vs. Depression
There’s no real definition of a recession or a depression, but there are key similarities and differences between the two. For instance, a recession tends to be more short-term economic woes, or at least two consecutive quarters of negative GDP. A depression is often characterized by a more long-term reduction in economic activity. The Great Depression, the only recorded depression in the industrialized U.S., spanned a 10-year period.
There are also similarities between recessions and depressions, and it’s more than just decreased economic activity. Joblessness is also characteristic of these times. During the Great Depression, unemployment peaked at 25 percent. During America’s previous two recessions in 1982 and 2009, unemployment hovered around 10 percent. Based on May data from the Bureau of Labor Statistics, unemployment is currently slightly north of 13 percent, an improvement from April data.
Will it Lead to a Depression?
Most economists believe that in order for the current state of affairs to reach depression status, unemployment will need to rise to 20 percent. And while we’re certainly not out of the woods with the COVID-19 pandemic yet, it seems unlikely that this will happen. There are several reasons for this:
- America is reopening: Though the threat of COVID-19 is still out there and cases are rising in certain areas of the country, America is cautiously reopening. And as it reopens, businesses that laid off or furloughed workers will need to bring them back.
- The promise of treatments, vaccines: Several antibody treatments and preventative vaccines are currently in various phases of human trails – and there’s serious reason for optimism that they’ll be available sooner rather than later, which can help eliminate the need for social distancing and truly help the country fully reopen. This is especially significant when you consider that about 60 percent of all job loses during the pandemic were because of social distancing needs. Furthermore, about three-quarters of all who are currently unemployed are believed to be out of work on a temporary basis. Job losses in a depression are usually permanent.
- Government tools: Another reason why we’re likely to fall into a depression is because the government has plenty of tools at its disposal to provide the temporary economic relief the country needs to weather this storm. It already stepped up with the multi-trillion dollar CARES Act in late March and is likely to pass another major bill if it is warranted.