- Economist David Rosenberg projects there is an 85% chance that the US economy will have a recession in 2024.
- In contrast to the yield-curve indicator, he emphasized a relatively recent economic model that has shown to be more accurate.
- “Our conviction that the recession has been delayed but not derailed is still running at a high level,” Rosenberg stated.
According to a new economic model that economist David Rosenberg highlighted, a recession is projected to hit the US economy in 2024.
According to the economic indicator, which Rosenberg refers to as the “full model,” there is an 85% probability that a recession will occur over the next 12 months.
The reading on the model is at its greatest point since the 2008 Great Financial Crisis.The model includes financial conditions indexes, the debt-service ratio, foreign-term spreads, and the yield curve’s level. It is based on a working National Bureau of Economic Research report.
According to Rosenberg, this economic model’s “superiority” over alternative models stems from its track record of accurately predicting recessions and being free of false signals since 1999.
He pointed out that at the beginning of 2023, the yield-curve indicator indicated that there was a 50% likelihood of a recession, whereas this model only predicted a 12% chance.
“The full model predicted the ‘soft landing’ we saw in 2023 — but now is saying that for 2024, recession probabilities are highly elevated,” Rosenberg stated.
The model challenges the increasingly popular belief that this year will see a “soft landing” or “no landing” for the economy.
“Our conviction that the recession has been delayed but not derailed is still running at a high level,” Rosenberg stated.
He stated that the stock market would most likely suffer greatly if a recession actually happened.
“Few asset classes are priced for that outcome, even though recessions are part and parcel of the business cycle and almost always come on the heels of a Fed rate-hiking cycle that continues past the point of a yield curve inversion,” Rosenberg stated.
Rosenberg’s approach also contributes to the explanation of why the frequently watched yield-curve indicator has failed to correctly anticipate a recession thus far.
“It also explains why the yield curve didn’t work as a recession predictor in 2017-19: easy financial conditions, extremely low debt service obligations, and favorable foreign term spreads offset the signal from the inverted U.S. yield curve,” Rosenberg stated.
