Sunday, 28 May 2023

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David Rosenberg: Recession is here, but nobody noticed

David Rosenberg: Recession is here, but nobody noticed

For over a year now, so many people have feared the “R” word coming for the economy that this hypothetical recession has likely become the most widely predicted in history. Why did a recession seem inevitable? It could have been the 10 back-to-back interest rate hikes since last March, or the subsequent drag on housing market activity, or the large-scale culling of jobs across sectors and an extended stock market rout in 2022 that left the economy, especially the tech sector, on edge. Or it could have been all of the above (plus inflation.) But now, a well-known economist says we don’t need to look on the horizon for a recession to come—it’s already here and we all missed it. We were looking in the wrong place, he says. 

“Nobody talked about the release of real GDI today,” David Rosenberg, the founder of Rosenberg Research and formerly a chief economist on Wall Street for roughly two decades, at Gluskin Sheff and Merrill Lynch, wrote in a tweet Thursday, referring to the gross domestic income numbers that came out the same day.

GDI dropped 2.3% in the first quarter of 2023, following a 3.3% decrease in the last three months of 2022. That’s the worst decline in two consecutive quarters since the COVID-19 pandemic began—and two consecutive quarters of decline is what economists call a “technical recession.”

When you consider gross domestic product, on the other hand, the economy expanded 1.3% in the first quarter of this year, staving off recession from that perspective. Together, GDI and GDP are considered key indicators of how the economy is doing, and Rosenberg argued that everybody was ignoring what a key data point was conveying.

“Averaging it (GDI) out with GDP, the economy has contracted for back-to-back quarters and in 4 of the past 5!” Rosenberg wrote. “The recession has arrived and nobody’s noticed.” 

GDI and GDP are closely related ways of measuring almost the same thing, but not quite. GDI measures the income earned and costs incurred when producing all the sales of stuff in the economy that add up to GDP, but the latter is often considered a more reliable

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