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"I Don’t Want To Alarm Anyone But..." - David Rosenberg Flips Again, Thinks We A

posted on Jun 05, 2016 03:15PM

"I Don’t Want To Alarm Anyone But..." - David Rosenberg Flips Again, Thinks We Are Headed For A Recession

by Tyler Durden - Jun 5, 2016 10:31 AM

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Back in 2013, when David Rosenberg infamously flip-flopped from bear to bull on the "thesis" that everyone's wages (not just his), are about to rise, and that a jump in wage inflation would be the catalyst to unleash a broad economic recovery in the process crushing bonds, we were decidedly skeptical. We said that the only thing that had changed at the time, was the Fed's launch of QE3, which more than anything succeeded in fooling a great deal of otherwise smart people into believing that, like in China, the massive credit impulse-induced boost would be not only sustainable but lead to economic growth.

It did not.

Some three years later, not only is wage inflation nowhere to be found, but bond yields are about as low as they have ever been, over $10 trillion in global debt yields less than 0%, while increasingly more speculate that the outcome of the Fed's disastrous policies (and Obamacare) will be stagflation, as a result of stagnant wages coupled with soaring prices for such core services as healthcare, drugs, rent and education (not to mention the stock market bubble), tumbling productivity and economic output that keeps sliding.

To be sure, David Rosenberg did not take lightly to our crticism of his flip-flop leading to this infamous exchange from January 2015.

Fast forward nearly 18 months later, and it seems that it is time for another flip-flop from the former Merrill strategist.

But first by way of background, this is what Gluskin Sheff economist told the WSJ only this past February:

“I put the odds of a U.S. recession in the next year as close to zero as anything could be close to zero,” said David Rosenberg, chief economist at money-management firm Gluskin Sheff & Associates.

A spike—not a fall—in oil prices preceded or accompanied every recession since the 1970s. “This is the first time I’ve ever heard the economic intelligentsia talk about how lower oil prices are going to trigger a recession in the United States,” said Mr. Rosenberg.

Actually it was only the "tinfoil blogs" who said that lower oil prices are going to trigger a recession over a year ago. The economic intelligentsia only jumped on that bandwagon a few months ago. Only the delayed flip-floppers still held on to "hope as a strategy/"

Which brings us to today's when as Henry Blodget notes that David Rosenberg is once again back in the bearish camp and "thinks we are headed for a recession."

as close to zero as anything could be close to zero"? Truly so much changes in just 4 months, especially with the stock market soaring since Rosenberg's made this statement to just shy of alltime highs.

There was just one time, in the 1985/86 oil price collapse, that we had such a huge decline in goods-producing employment without a recession lurking around the corner — but the Fed was easing then and fiscal policy was a lot more accommodative than is the case today.

Not even the job slippage in goods-producing sectors during the 1995 soft landing and the 1998 Asian crisis were as severe as what we have had on our hands from February to May.

For such a long time, the service sector was hanging in but services ultimately service the part of the economy that actually makes things.

Private service sector job gains have throttled back big-time — from +222,000 in February to +167,000 in March to 130,000 in April to +25,000 in May (ratified by the non-manufacturing ISM as the jobs index sagged to 49.7 in May from 53 in April — tied for the second weakest reading of the past five years).

The sudden bashing of the economy continues:

Once again, a discernible pattern here, but it is where the slowdown is taking place that is most disturbing.

More than one-third of the weakening we saw in the private services sector came in temp-agency employment where employment shrunk 21,000 in May, down now in four of the past five months and by a cumulative 64,000 which is a losing streak we have not seen since August 2009.

In fact, this type of weakness over such a stretch, again not to sound like an alarmist, occurred just prior to economic recessions in the past, without exception and with no “head fakes”.

Yes, it typically is not good news when the headhunters are the ones to start chopping off heads — this is a leading indicator. So I may not want to sound alarmist, but the answer is yes … I am worried.

In fact, the weakness in employment has broadened out rather dramatically — this is not just a one or two sector phenomenon. This is not just about factories cutting back, shale weakness affecting mining or constraints within the reregulated financial sector.

* * *

The bottom line is that no matter how shockingly weak the headline numbers were, the details were even worse.

Yes, truly a shock to anyone who was spoonfed the government's recovery propaganda without digging deeper behind the numbers.

As for his conclusion:

We were always skeptical over all this rate-hike chatter of late, which seems to have just come out of nowhere, but for the Fed to tighten policy in the face of this extremely sluggish job market backdrop would be more than just a touch bizarre.

Then again, Fed officials have also told us that they are data-dependent and let’s face it… there is no smoking gun in the employment data, that is for sure, and there are no data points as important as the labor market.

This is a game-changer.

Yes indeed, and now we look forward to every other economist's "narrative pivot" in the coming weeks, economists such as another former data cheerleader and permabull, DB's Joe Lavorgna, who frontran Rosenberg's latest flip-flop conversion by about 6 months, and who as we reported yesterday, warns that the next US recession may start as soon as next quarter.