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.
  • 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

A slump simply describes a period of poor performance or inactivity in an economy, market, or industry. For example, industry slumps are common and widespread. The airline industry goes through frequent slumps brought on by intense competition where 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.

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 timeframe 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 slumping 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 bump was a way to refer to the stock market rally that followed his election as President of the United States in November 2016. The Trump slump refers to the declining number of international visitors and tourists to the United States during his time in office.