david rosenberg-no us recession in sight

8/12/2019 David Rosenberg-No US Recession in Sight

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- 1- Copyright 2014, Advisor Perspectives, Inc. All rights reserved.

DavidRosenberg:NoU.S.RecessioninSightByRobertHuebscher

March4,2014

FollowingalacklusterrecoverythatbeganinJune2009,manyfeartheU.S.isduefor

anotherrecession,giventhattheaveragepostwareconomicexpansionlastedfive

years.Butwereonlyinthefourthorfifthinningofthebusinesscycle,accordingto

DavidRosenberg,whopredictsgrowthinconsumerandcapitalspendingand

positivereturnsforU.S.equities.

IttakesalottoshocktheU.S.economyintoarecession,Rosenbergsaid.Noneof

thefactors

that

historically

triggered

arecession

such

as

atightening

move

by

the

FederalReservearelikelyoverthenexttwoyears,accordingtoRosenberg.

RosenbergisthechiefeconomistandstrategistatGluskinSheff,aTorontobasedwealthmanagementfirm.

Priortojoiningthefirmin2009,hewasthechiefeconomistatMerrillLynch.HespokeinBostononFeb.27

atalunchhostedbytheBostonSecurityAnalystsSociety.

IlllookatRosenbergsbullishU.S.forecastincludingwhyhethinksunemploymentdataare

misunderstoodbymanyandathispredictionsfortheequityandbondmarkets.

TwomoreyearsofgrowthForRosenberg,thecentralquestioniswhethertheU.S.economywillrelapseintoarecession.Onceyou

answerthatquestion,hesaid,youcandebatethedirectionoftheequityandfixedincomemarkets.

TheU.S.economyisincrediblyresilient,hesaid,andheagreedwiththeadagethatarecoveryneverdies

ofoldage. Ittakesanegativeshocktostartarecession,hesaid andthosealwayshavetheFeds

thumbprintonthem.

AsevereforeignbasedshockisunlikelytoderailU.S.growth,hesaid.Rosenbergnotedthatoureconomy

andmarketshadgoodperformancefollowingtheAsiancrisisin1997.

TheU.S.economyenduredthemotherofallfiscalshockslastyear,whenfiscalpoliciesraisedmarginal

rateson

income,

dividends,

capital

gains

and

payroll

taxes.

Layered

onto

that

was

the

sequestration.

Collectively,thosefactorsplaceda1.5%dragonGDPgrowth,alevelthatoccurredonlytwiceinthepost

warperiodinthe1960and1970andbothtimestheU.S.wentintoarecession.

Itsprobablyamiraclethatwedidnthavearecessionlastyear,hesaid.

Forecastinggrowthissurprisinglyeasy,though,accordingtoRosenberg.Theworkisalreadydone,he

said.HereliesontheConferenceBoardleadingeconomicindicators(LEIs)ahodgepodgeof10data


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points,includingbuildingpermits,factoryworkweeks,durablegoodsorders,initialjoblessclaimsandthe

yieldcurve.

When

the

LEI

turns

negative,

he

said,

arecession

ensues.

Rightnow,theLEIisincreasing5%yearoveryear,hesaid,andheadingupwards.

ThesteepnessoftheyieldcurveisthekeymetricwithintheLEI.Whentheyieldcurveinverts,Rosenberg

said,yougetarecession.Butatasteepnessof260basispoints,theyieldcurveisnowherecloseto

beinginverted.

Theresnosuchthingasasurething,especiallyinthisbusiness,butthechancesofarecessioninthenext

yearortwoareclosetozero,Rosenbergsaid.

Rosenbergbelievesweareonlyinthefourthorfifthinningofthebusinesscycle.Hiskeypointwasthat

consumerspendingisabouttosurge,whichtypicallyoccursmidwaythroughabusinesscycle.


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Housinghaspeaked,hesaid,andthatisthequintessentialearlycycleindicator.Thedriverofgrowthwill

transitiontoconsumerspending,accordingtoRosenberg.Housingpeakedin1986,fouryearsbeforethe

endof

that

cycle,

and

again

in

2005,

three

years

before

that

cycle

ended.

Housing

may

still

surprise

to

the

upside,Rosenbergsaid,astheemploymentpicturebrightens.

Consumershavedelevered,andthatiswhatdrivesRosenbergsoptimism.Morethan$1trillionin

consumerliabilitieshavevanished,hesaid.Variousratios,includingdebttoGDPanddebttoincome,

havereturnedtoprecrisislevels.Wevecomealongwayoutofthisdeleveragingcycle,hesaid,and

thatsover.


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BehindtheunemploymentdataRosenbergchallengedthosewhohaveattributedthedecreaseintheU6unemploymentratefrom10%to

6.6%toadeclineinthelaborparticipationrate.

Governmentstatisticsshowapproximately90millionpeoplewhohaveleftthelaborforcebecausetheyare

discouraged,whichhasdrivendownthelaborparticipationrate.

Rosenbergquestionedthosedata,specificallytheconditionsunderwhichthosepeopleareliving.He

speculatedthattheymaybeoperatinginthebarterorundergroundeconomyormayhavemovedinwith

relativesorparents.Headdedthatdemographicsshouldcausethelaborpooltoshrink,as1.5million

peoplewillturn65eachyearforthenext15years.

Buthiscritiqueofthedatacenteredonthedivergenceamongkeyindicators.Hesaidtherearecurrently4

millionjobopenings,signifyingastrongdemandforlabor.Onefactordeterringjobsearchersisbenefit

programs.HecitedacontroversialandprovocativeCatoInstitutestudyshowingthat,in39states,ifone

cantapeverystate,localandfederalbenefitprogram,theycanmakeasmuchmoneyasanadministrative

assistant.

Rosenbergchallengedthenotionthatthereisalotofslackinthelabormarket.AccordingtoBLSdata,

Rosenbergsaidthosenotinthelaborforcewhosaytheyarediscouragedwasdown14%yearoveryearin


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2013.Likewise,hesaidthehouseholdsurveyshowsthatthenumberofpeoplewhowouldtakeajobif

offeredone

is

up

10%

over

that

period.

The

Manpower

employment

outlook

shows

the

supply

of

labor

was

down15%overthatperiod.Theavailablesupplyoflabor,fromtheBureauofLaborStatistics(BLS),isdown

15%fromayearago.

Withthedemandforlaboratafiveyearhighanditssupplyatafiveyearlow,Rosenbergsaidnominal

wageswilltrendhigher.HesaiddatafromtheNationalFederationofIndependentBusinesses(NFIB)shows

thatthenumberofsmallbusinessesintendingtoincreaselaborcompensationisatitshighestpointinthis

businesscycle.

Anincreaseinwageswilldepressprofitmargins,Rosenbergsaid,whichreflectsareversiontothemean

thatmanyanalystshavepredicted.Rosenbergwelcomedthis,whichhesaidrepresentedatransferof

income

from

the

part

of

the

economy

that

has

a

40%

savings

rate

(corporations)

to

that

with

a

4%

savings

rate(consumers).Thatshiftwouldcreatearealmultiplierimpactonspending,hesaid,forboth

consumersandcorporations.

The70%oftheeconomyrepresentedbytheconsumerwillgrow,accordingtoRosenberg,aswillanother

10%fromcapitalspending.Andtheremaining20%governmentspendingwillbenefitfromtheendof

fiscaltightening.

Rosenbergsforecastformonetarypolicyandthemarkets


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Rosenbergssaid

his

bullish

forecast

for

the

economy

is

only

half

the

picture.

Liquidity

the

oxygen

for

financialassetsneedstobeplentiful.Gettheeconomyright,gettheFedright,andIlltellyou90%of

thetimeyouwillgetyourmarketcallright,hesaid.

TheFedwillnottightenuntilunemploymentgetsbelow6%,hesaid,whichcouldhappeninthesecondhalf

ofnextyear.Itwontattempttoflattentheyieldcurveuntilearly2016.Thenextrecessionwontbeuntil

2017,hesaid.

Rightnow,hesaidconditionsareinthesweetspot,witheasymonetarypolicy,albeitataslowerrate

thanlastyear,andagrowingeconomy.

Givenlast

years

strong

equity

market

performance,

Rosenberg

said

he

was

not

surprised

by

the

series

of

rollingcorrectionsthisyear.Itprobablywillcontinue,hesaid,anddoesntexpectabearmarket.

UnlikeduringhisdaysatMerrillLynch,Rosenbergisnolongerobligedtoprovidepointforecastsforthe

market.Butwhenpressedduringthequestionandanswersession,hepredictedthattheS&Pwouldreturn

5%to7%in2014.Hesaiditwouldbeunusualtohaveadownyeargiveneconomicandmonetary

conditions.

Hisforecastforbondswasfarlessrosy.

RosenbergcitedanarticlethatappearedintheNewYorkTimesonOct.27,Now,SomeFearEconomyNeedsMoreInflation.Heasked,rhetorically,towhomthesomerefers.

Doyouknowwhoitis?heasked.ThepeopleattheFed.

FormerFedchairBenBernankesaidinhislastpressconferenceonDec.18thatweareverycommittedto

makingsurethatinflationdoesnotstaytoolow.

Theseguyswantinflation,Rosenbergsaid.Imnotsayingtheywantcrazyinflation,buttheywantmore

inflationthantheyalreadyhave.

Iwanttoinvestaroundthat.

The30

year

secular

downtrend

in

long

term

interest

rates

ended

in

July

2012,

he

said,

when

the

10

year

notegotto1.43%.Therehavebeenandwillbefailedtestsofthatlow,hesaid.

ButtheseculardownmoveintreasuryyieldsisOVER,itsdone,hesaid.Wehaveawholenew

monetarypolicy,andIwouldnotbebettingagainsttheFedgettingwhatitwants.
http://www.nytimes.com/2013/10/27/business/economy/in-fed-and-out-many-now-think-inflation-helps.html?_r=0http://www.nytimes.com/2013/10/27/business/economy/in-fed-and-out-many-now-think-inflation-helps.html?_r=0


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david rosenberg-no us recession in sight

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