As the U.S. faces a host of economic headwinds, from union strikes and resumption of student loan payments to rising oil prices and sky-high mortgage rates, economist David Rosenberg believes a recession is all but certain.
Of course, the president of market analysis and investment strategy firm Rosenberg Research has also been predicting a recession for some time. In March 2022, just after the Federal Reserve began to raise interest rates to combat rising inflation, he warn There is a 75% chance that the United States will be in recession by the end of this year.
That call proved premature, but the veteran economist still won’t give up on his pessimistic forecast — even as some of his peers and Fed staff have.
“It hasn’t come true yet, dot-dot-dot,” he Tell CNBC Asked about his predictions on Wednesday, he stressed that he now believed a recession would hit within the next six months, despite more optimistic forecasts from his peers.
“It’s like, if it doesn’t snow in December, then we cancel winter,” he quipped.
Rosenberg expects consumers to begin to slow their spending significantly in the fourth quarter, especially as natural gas prices rise to $100 a barrel, calling the period a “litmus test” for his recession predictions.
A bit like 2008?
Rosenberg pointed out that when interest rates rise, the economy is affected by long and variable lags, noting that central bank policies often weigh on the economy for several years before eventually causing problems.
“Historically, it usually takes two years from the first rate hike by the Fed to the onset of a recession,” he said. He believes recession forecasters like him are “a little too impatient.”
Rosenberg said the stronger-than-expected performance of U.S. consumers over the past two years helped the economy emerge from recession for two reasons. First, the “lingering fiscal stimulus” from direct-to-consumer payments and small business loans issued during the pandemic helped prevent consumers from feeling the full impact of inflation. Second, the “consumer credit card boom” boosted spending.
The Federal Reserve Bank of New York said that due to inflation, U.S. consumer credit card balances increased by $45 billion in the second quarter, hitting a record high of $1.03 trillion. data show.
Rosenberg believes consumers won’t be able to rely on credit cards forever and will be forced to slow down their spending as fiscal stimulus fades. Rosenberg said that while the $1.2 trillion Infrastructure Investment and Jobs Act and the $280 billion CHIPS Act will boost industry and manufacturing next year, their impact will not be as consumer-focused as during the pandemic The stimulus measures are so big. He pointed out that the industrial and manufacturing sectors of the U.S. economy account for only a small part of U.S. GDP, while consumer spending accounts for 70%.
“The key is not how the CHIPS Act or all the other industrial subsidies or government intervention will affect the business cycle, the key is what happens to consumers when these fiscal training wheels are about to come off,” he added.
When it comes to maintaining bearish forecasts even in the face of more positive economic data over the past year, Rosenberg highlighted his experience leading up to the 2008 Great Recession. “This reminds me of the recession prediction I made in 2007,” he said.say, noting that these results were shown to be correct, although critical then.
Of course, Rosenberg was also “99% sure” there would be a recession in 2012, but that wasn’t the case.
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