David Rosenberg is one of the few who considers the Federal Reserve Beige Book a page-turner. The publication, published eight times a year, is filled with anecdotes from business leaders and bankers from around the country that describe the state of the economy in a way that headlines can’t.
“It just shows that I’m a fun-loving person,” the founder and president of Toronto-based Rosenberg Research tells Forbes.
Curious about where the economy was headed next, Rosenberg decided to go all out. They reviewed the Beige Books published one month before each recession of the past 40 years. Their surprising conclusion: The previous versions were the most disappointing.
“There’s no way you can read that Beige Book and not come to the conclusion that the economy isn’t already entering a recession,” Rosenberg says.
A year ago, forecasting a recession was a popular call among tea leaves readers. But as a pleasant surprise emerged in the economic news, more and more forecasters disappeared. Last month, only 9% said a contraction was more likely, down from 18% in October. For economists still undecided, Friday’s announcement of positive job growth in January gave them 353,000 new reasons to cancel recession bets. Looking at the sample of market insights arriving in customers’ inboxes, we can assume that almost all of them have done so.
But Rosenberg and some other experts are not budging. He says most chart watchers are happy because they are looking at the wrong numbers, or the numbers they celebrate will be revised, or they are obsessed with the data and don’t listen to the words behind the numbers. Let’s describe the life of. Rosenberg isn’t above a little trash talk. He joked, “I wouldn’t be surprised if the economists who threw the towel over the recession used that towel to wipe the dirt off their faces.”
Rosenberg emphasizes that much of the country’s economy is shrinking or on the brink. Danielle DiMartino Booth, founder and CEO of QI Research, is certain that the national recession has already begun. Joseph Lavorgna, chief economist at SMBC Nikko Securities, says that although “confidence decreases with each job created”, they are still in recession. And billionaire bond king Jeffrey Gundlach, founder and CEO of DoubleLine, is spreading the word that storm clouds of an economic contraction are gathering.
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Here are 13 reasons why a recession is (still) coming
- GDP looks good, but have you seen the GDP?
Gross domestic product measures everything produced in a country. Gross domestic income tracks everything that is earned. Rosenberg says nominal GDP growth last year was 6%, but GDP was -7%. Never in recent memory has there been such a big gap between what’s coming in and what’s going out, Rosenberg says, “but we only talk about GDP.”
What comes out must come in
GDP (orange line) is what we spend. Gross domestic income (the purple line) is what we earn. They should be more or less the same. they are not. The gap between them may not seem like much, but it is the largest in recent memory.
- A soft landing is always preceded by a recession.
Jason Furman, who does not predict any recession, believes this to be true. “A soft landing happens before a recession,” Furman, the Harvard professor who served as chairman of the Obama White House Council of Economic Advisers, told Forbes. “Of course, if we have a recession this spring, we will look back and say it was a hard landing.”
- The impact of government stimulus is getting smaller in the rearview mirror.
Rosenberg says two-thirds of GDP growth last year came from pandemic control. “This gave a false shine to the GDP figures. This will not be a recurring factor in 2024.
- Consumer defaults are increasing.
In 2021, the percentage of Americans behind on their loan payments was probably the lowest ever recorded (the data isn’t that old). Thanks Uncle Sam. But the numbers are now surpassing pre-pandemic levels, according to data from the Federal Reserve Bank of St. Louis. For example, 2.2% of Americans’ credit card debt was more than two months past due in the third quarter of 2023, up from 1.9% over the same period in 2019, according to the Philadelphia Federal Reserve report.
- Commercial real estate losses will increase.
It’s playing out like a horror movie. In the first scene, Covid clears out office buildings. An interior view of office workers sitting in their sofas with their laptops. According to data provider Trepp, an estimated $544 billion in commercial mortgages will mature in 2024 and another $533 billion will mature next year. Fitch Ratings has warned that commercial mortgage defaults will double this year to 4.5%. That may not be enough to trigger a recession, but it doesn’t bode well for regional banks, Trapp said, noting that they hold more than half of the loans maturing between now and 2029.
- Last year’s regional bank scare is not over.
If not, ask New York Community Bancorp. Last week, after it reported a fourth-quarter loss, cut its dividend by nearly two-thirds and told investors it was saving cash to cover future commercial real estate losses, the stock fell 38%. . That sent the KBW Regional Bank Index down 6%, its biggest one-day drop since Signature Bank closed last March. New York Community Bancorp now owns Signature’s assets.
- Government can shut down.
The next deadline for a potential government shutdown for funding reasons is early March.
- Inverted yield curve.
When investors can earn higher yields on short-term Treasury bonds (say, two years to maturity) than on long-term bonds (in this case, ten years), strange things happen, like when the Detroit Lions win a playoff game. . ,
An inverted yield curve is “never a good sign,” says optimist Richard Bernstein, founder and CEO of Richard Bernstein Advisors in New York. When the curve inverts, borrowing costs may become so high that banks will not lend, slowing the economy.
According to LaVorgna, who was an economic adviser in the Trump White House, the yield curve first inverted in July 2022, meaning that if it continues through March, it will set the record for the longest IYC in history.
The IYC has a perfect record of predicting recessions, at least so far, which presents Lavorgna with an existential dilemma. “The yield curve is an excellent historical metric, probably the best,” he told Forbes. “This (year) will show whether the yield curve still matters.”
dead man’s curve
Whenever the fever line goes below the horizontal line, recession occurs. Except this time. So far.
- Just because a recession hasn’t happened yet doesn’t mean it won’t happen.
Rosenberg: “Saying that a recession won’t come because it hasn’t happened yet is like being in Minneapolis in December and there’s no snow and you predict there won’t be a winter.”
- Too much optimism.
Last week, the S&P 500 and the Dow Jones Industrial Average hit all-time highs. “I think the markets are in a period of euphoria right now,” Gundlach recently told Fox Business News. “I’m worried about it.”
- Flashing red: Economic Indicators Panel.
The organization said on January 22 that the Conference Board’s index of leading economic indicators was “pointing to a recession.” The index continued to decline by 4.3% in the first six months of 2023, following a 2.9% contraction between June and December.
- Lots of layoffs.
MicroEdge, which tracks job cuts announced in companies’ quarterly earnings calls, says 103,500 were cut in January. DiMartino Booth says most states experienced net job losses in October and recession watchers would essentially calculate that the contraction had started that month. “I think one of the themes of 2024 will be layoffs,” Gundlach says.
- Historically, there has been a 27-month lag between a rate hike and recession.
Rosenberg: “The bullseye appears in late spring and early summer.”
Here’s the really worrying part. This comes from Obama’s White House advisor Furman, who is seeing growth, not recession, this year. “Not everything the pessimists tell you is crazy,” he says. “Maybe.”
This article was originally published by Forbes US.
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