Depression Definition

Depression refers to a prolonged and severe economic downturn characterized by reduced economic activity, high unemployment, and decreased consumer spending.

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What is a depression?

The depression business definition represents a sustained period of severe economic weakness. A depression is characterized by:

  • Sharp and sustained declines in economic activity
  • High rates of unemployment, poverty, and homelessness
  • Sluggish prices, low volume, and lack of buyers
  • Increased rates of personal and business bankruptcy
  • Massive declines in stock markets
  • Negative gross domestic product (GDP)
  • Significant reductions in international trade

Economists disagree on a standard duration for a downturn to qualify as a depression. Still, one agreed-upon definition of depression is the “trough,” or low period, between a recession and an economic peak. Like a depression, a recession is a period of economic decline that lasts for at least two quarters. In comparison, a depression is a severe or sustained recession characterized by widespread unemployment and ongoing disruptions to the global market.

Depression Benefits

An economic downturn doesn’t seem like it would have many advantages, but a depression isn’t always bad for everyone. Historically, some industries have thrived during recessions, like candy, alcohol, tobacco, and maintenance services. Although credit isn’t as available, you can benefit from low prices if you can purchase with cash. Finally, because labor and resources are more expensive, the economy must become more efficient to satisfy consumer demands.

Depression Considerations

A depression can have lasting consequences on economic conditions. The disadvantages of a depression mirror its characteristics, including high unemployment, rising borrowing costs, a decrease in living standards and well-being, and increases in the public deficit. None of these are easy circumstances for a small business to navigate. Thorough business planning and sustainable practices can help you prepare for an economic downturn. 

Other Names for Depression

When discussing the meaning of a depression, you might encounter these similar terms:

  • Recession
  • Contraction
  • Drop
  • Decline
  • Slump
  • Downturn
  • Slowdown
  • Trough 

To reach economic depression, there must be a high point for the GDP to fall from. Thus, a depression definition isn’t complete without listing its antonym — an economic boom, peak, or upturn. If prices fall after a peak, you could be headed for a severe depression or a mild recession.

Depression Examples

The most significant depression in U.S. history was the Great Depression from 1929 to 1939. At the height of the Depression in 1933, nearly 25% of the total workforce was unemployed, industrial production fell nearly 47%, and GDP declined by 30%. In response, President Franklin Delano Roosevelt instituted federal agencies to stabilize prices and increase job creation. Ultimately, however, World War II influxed the nation with jobs and improved economic demand.

Summary

The depression definition means severe and sustained economic downturn. While the U.S. hasn’t experienced a major depression since the 1930s, you can prepare your business to survive a depression with detailed planning.

We Can Help

We help answer your questions about entrepreneurship, including the consequences of a depression. Whether you need to understand economic cycles, liability, or taxes, we can help. If you’re ready to form a corporation or limited liability company, we offer Business Formation Services to start your legal entity today. Plus, with our Worry-Free Compliance Service, we’ll remind you of important deadlines and keep you plugged in with your personal dashboard.

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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Written by Team ZenBusiness

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