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How do u know u r in recession?

May 15, 2008

when GDP is negative then a country is said to be in recession that is the reason US govt is not using the word recession but economic downturn. In US there has been a growth but at a slower rate than what is expected.
One of the indicators of recession is an inverted yield curve( the relationship between short- and long-term interest rates). Long-term bonds usually pay more than short-term ones to compensate investors for locking up their money. When that relationship flips and produces what’s known as an inverted yield curve, you can be pretty sure a slump is coming soon.
The most important clue may lie in the minds of business leaders, says Nariman Behravesh, chief economist at Global Insight. The more upbeat companies feel about their prospects, the more likely they are to expand and hire, which in turn lifts consumer confidence, sparks spending and boosts economic growth.

To get a read on business sentiment, Behravesh suggests looking at the Institute for Supply Management’s nonmanufacturing index, a monthly survey of conditions in the service sector, which accounts for 80% of jobs. A reading below 50 is typically regarded as a recession signal; the lower it goes and the longer it stays down, the more severe the slump. Once it returns to 50-plus territory, a rebound is likely.

During the brief recession of 2001, the index dropped below 50 just as the slowdown started and hovered between 45 and 50 for most of the next eight months. A month before the recession ended, the index rose sharply to just under 50 and soon stabilized in the low 50s

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