David Rosenberg: The recession is here, but no one notices

For over a year now, many people have been dreading the “R” word coming for the economy as this hypothetical recession is likely to become the biggest yet. widely predicted in history. Why does a recession seem inevitable? It could be 10 back-to-back increase in interest since last March, or the next drag on housing market activity, or the large-scale lay off jobs across the sector and an expanded stock market crash in 2022 leaving the economy, especially the tech sector, in limbo. Or it could be all of the above (plus inflation.) But now, a prominent economist says we don’t have to look over the horizon for a recession to come—it’s already here and we’re all miss it. We are looking in the wrong place, he said.

“No one is talking about releasing the real GDI today,” David Rosenberg, the founder of Rosenberg Research and former chief economist on Wall Street for nearly two decades, at Gluskin Sheff and Merrill Lynch, wrote in a tweet Thursday, referring to the gross household income figures that arrived except on the same day.

GDI fell 2.3% in the first quarter of 2023, after a 3.3% decline in the last three months of 2022. That was the worst decline in the two successive quarters since the start of the COVID-19 pandemic—and two consecutive quarters of decline are what economists call “technical economy.”

If you consider the gross domestic product, on the other hand, the economy grew by 1.3% in the first quarter of this year, preventing recession from that perspective. Together, GDI and GDP are considered important indicators of how the economy is doing, and Rosenberg argues that everyone is ignoring what a key data point means.

“Averaging it (GDI) with GDP, the economy has contracted for back-to-back quarters and in 4 of the last 5!” Written by Rosenberg. “The recession came and nobody noticed.”

GDI and GDP are closely related ways of measuring almost the same thing, but not quite. GDI measures the income earned and expenses incurred in making all sales of goods in the economy that add to GDP, but the latter is often considered a more reliable estimate, according to the Bureau of Economic Analysis. The pessimistic GDI data points to a slowdown in the pace of economic expansion as a result of high inflation despite the continued rise in interest rates and tighter credit availability.

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But how (or if) the financial markets factored into a possible recession is still under debate. Strong data in the first months of the year, including low unemployment rateFIRM consumer spendingand slowly, but positively GDP growth figuresgives investors hope that a recession, if it comes, will be mild.

Rosenberg, who holds a bearish view in the economy for months, highlighting the disconnect in how financial markets view the recession. In a Thursday tweet, he pointed out that key industries in the S&P 500 index, such as transport and consumer discretionary, which are tied to the health of the economy, are trading at lower levels. That’s a symptom of a development like many others in the past, including during the financial crisis of 2008, according to Rosenberg. The overall S&P 500 index is up 9.64% since the start of the year.

The Wall Street veteran wasn’t completely sold on the long story even earlier this year. In February, he tweeted that the idea of ​​a “no landing” scenario—where interest rate hikes do not trigger a recession while the inflation rate remains high and the economy grows—is far from truth.

“The ‘no landing’ narrative is the biggest hoax peddled by Wall Street economists since the ‘global decoupling’ of 2008,” Rosenberg tweetedwhich refers to an idea in which the business cycles of developed and developing countries are significantly different.

Rosenberg warned about a recession hitting the US economy even earlier this year, saying the S&P 500 index could fall as much as 30% by the time the Fed stops hiking of interest.

“The economy is starting,” Rosenberg SPOKE MarketWatch.

“The market is usually in the sixth or seventh inning of the recession, deep into the Fed easing cycle,” he said, pointing to a long period of pain for the economy.

If other long-standing gauges, such as copper pricemust believe, we may be closer to a recession now than investors realize.

“This is the first physical evidence we’ve seen that demand has been more affected than expected in the West,” Natalie Scott-Gray, a base metals analyst at broker StoneX, told Financial Times about copper prices. As one of the most widely used metals in the world across industries, copper trade reflects the appetite for demand.

Another indicator of the recession can be seen in corporate income. Profits for S&P 500 companies fell an estimated average of 3.7% compared to last year, and although most companies beat their earnings forecasts, it wasn’t as big a gain as analysts had been discounting. their guide, Bloomberg reported.

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