Top Economist Warns of LoomingRecessionin the US

Economist David Rosenberg warns of a potential recession in the US, citing a weakening job market and slowing economic activity. Job openings have declined 12% over the past year, and popular recession models signal a 50% chance of a downturn within the next 12 months.

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Bijay Laxmi
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Top Economist Warns of LoomingRecessionin the US

Top Economist Warns of LoomingRecessionin the US

David Rosenberg, a renowned economist and president of Rosenberg Research, is sounding the alarm about a potential recession in the United States. Despite optimistic sentiment on Wall Street, where investors anticipate a stable economic picture, Rosenberg cautions that the US economy may be "sleepwalking" into a downturn.

Why this matters: A recession in the US would have far-reaching consequences for global markets and economies, potentially leading to widespread job losses and economic instability. It is essential for investors, policymakers, and individuals to be aware of the warning signs and take proactive steps to mitigate the impact of a potential downturn.

Job market is weakening, with the unemployment rate ticking up to 3.9% in April, near a two-year high. This brings the labor market closer to triggering the Sahm Rule, a metric indicating a coming recession when the three-month moving average of the unemployment rate rises 0.5% above its 12-month low.

Economic activity is also slowing down. GDP growth was softer than expected in the first quarter at 1.6%, and manufacturing activity has contracted for the 17th time in the last 18 months. Popular recession models, including the 2-10 Treasury yield curve, are signaling a 50% chance of a recession within the next 12 months.

Rosenberg warns, "Don't get complacent. The labor market is cracking, a slowdown in services activity is dragging on real-time growth, and forward-looking financial signals still point to a coming slowdown." He has been cautioning about a coming recession for months, and his concerns are growing as investors expect the Federal Reserve to keep interest rates higher for longer, risking overtightening the economy and sparking a downturn.

The warning signs are mounting. Job openings at the end of March fell to 8.49 million, a 12% decline over the past year. The number of job openings per unemployed worker dropped to 1.32, still above the 2019 average of 1.19 but indicating a tightening labor market. The ISM survey of manufacturers showed signs of stagflation in April, with new orders falling and prices paid jumping.

Mike Carr, Chief Market Technician, notes that "The worst of all worlds for the economy is stagflation — stagnant growth with inflation." He adds, "These low levels [of job openings] don't mean a recession is likely. But slow growth is almost assured — which will create stock market volatility in an election year."

David Rosenberg's warning suggests that the US economy may be more vulnerable to a recession than many investors believe. With a 50% chance of a downturn within the next 12 months according to financial models, a 12% decline in job openings over the past year, and a record high number of individuals holding both full-time and part-time jobs, it is essential to remain vigilant and prepared for a potential economic slowdown.