What Is a Slump?

Slump is a slang term for a sharp decline in business activity, trade, or market values. Slump is a very flexible term in that it is used to describe both a short, sharp decline as well as a more gradual, prolonged period of low activity or value. There are market slumps, economic slumps, industry slumps, earnings slumps, and so on. 

In economic terms, slump usually refers to the beginning of a recession. A recession is not officially declared until several months of declining activity have passed, so the months leading up to the declaration of recession are simply described as a prolonged economic slump.

Key Takeaways

  • A slump refers to a period of poor performance or inactivity in an economy, market, or industry.
  • The term slump is a metaphor borrowed from geology, and is an inexact and subjective term.
  • Within an economy, slumps can be precursors to an oncoming recession.
  • Stock market slumps result in lower share prices and trading volumes, creating an opportunity for contrarians and value investors to buy further.

Understanding Slump

The term slump is a metaphorical word that originally referred to a situation where a land surface slides down an underlying slope, often into a body of water or swampy area and usually forming a depression or becoming entirely submerged. This metaphor is meant to describe a market situation where prices, economic activity, or macroeconomic performance declines in a manner reminiscent of the way land subsides when a slump forms.

Industry slumps are common and widespread. The airline industry goes through frequent slumps brought on by intense competition. In these cases, capacity on overlapping routes is built up to the point where multiple airline companies are losing money on the majority of flights. This leads to more cost cutting to fill seats and eventually pushes down industry stocks as a whole.

Even specific commodities can experience slumps. In 2014, the price of oil slumped due to systematic oversupply coming out of OPEC and shale oil production.

Metaphorical terms, such as slump, are favored by business journalists and other nonexperts when describing quantitative economic or financial information. In order to make their writing more engaging or entertaining, they add variety to their word choice and usage, though they can sometimes obscure the underlying meaning. In general, a slump is simply used as an inexact, catch-all term to describe any period of poor performance or inactivity in an economy, market, or industry.

Because it has a somewhat negative connotation and no precise technical definition, the use of the term slump can refer to virtually any situation that the author or speaker wishes to frame in a negative manner, which makes this an inherently subjective term. A commentator who is interested in trading bonds, for example, might refer to a slump in bond prices, though, from the point of view of a lender, lower bond prices might be perceived as a positive thing since they also mean higher yields.

Housing market slumps may signal a prolonged period of housing value declines in a market. 

Market Slumps, Housing Market Slumps, and the Trump Slump

Slumps apply to financial markets as well. When the stock market enters a slump, share prices and trading volume will usually be lower. This can create investment opportunities for value investors and contrarians, but the investment usually has to be held with a longer time frame in mind. Slumps in the stock market and the wider economy often go hand in hand, but this is not always the case. China's stock market crashed in 2015 and spent the next few years in a slump even while the Chinese economy continued to grow. 

Housing market slumps are as widely reported as stock market slumps. These are periods when housing prices in a specific area or region see slowing sales and declining average prices. As with economic slumps, housing market slumps may signal a prolonged period of housing value declines in a market. 

One of the more unique usages of the word slump is the Trump slump. The Trump slump referred to the declining number of international visitors and tourists to the United States during his time in office. On the other hand, the Trump bump was a way to refer to the stock market rally that followed his election as President of the United States in November 2016.