Gluskin Sheff economist David Rosenberg kicked off the Altegris Strategic Investment conference on Wednesday with a largely upbeat view of the economy, saying the odds of a recession in the coming year are close to zero.
Indeed, Rosenberg, whose Breakfast with Dave daily research report is popular in the investment community, told an audience of more than 600 investment professionals meeting in San Diego that “we’re probably only in the fourth inning” of the current business cycle.
What’s more, headwinds that were stalling U.S. economic progress are rapidly dissipating. A slowdown in housing should not be cause for concern, he said, as housing is an “early cycle indicator” whose slowing is typically followed by a handing off of “the baton to the consumer.”
Nor should fears of rising household debt worry us, since it is not debt but “the capacity to service debt that is fundamental,” he said.
That capacity has grown, as has bank lending to consumers, which should translate into improved aggregate demand.
For perspective, he noted that the ratio of debt to GDP was 10% five years ago and proving intractable, but is now almost down to 2.5% — well past the 4% threshold that signals economic healing.
Rosenberg, a former chief North American economist of Bank of America Merrill Lynch, expressed deep concern about employment conditions, yet the socioeconomic woes he describes are not likely to move markets — only “change at the margin” does that, and there the trend is mildly positive, he says.
The disturbing trend is the number of people leaving the labor force — more than 90 million Americans are out of the work force and more are leaving, he says, adding that the oft-commented upon phenomenon of discouraged workers accounts for just one-quarter of the trend.
“Something else is going on here as it relates to the pool of available labor in the U.S.
“Part of it is when you create an environment in which you pay people not to work — that’s what we’ve done in this cycle — the number of people collecting a benefit is up 40% in 5 years,” Rosenberg says.
He cited statistics from a University of Chicago researcher indicating that large numbers of Americans can make more money sitting on the couch collecting benefits than as an administrative assistant or teacher.
Another factor — the most significant factor — affecting today’s low labor market participation rate is the wave of 78 million aging boomers who began reaching age 65 in 2011.
“Of course the labor market participation rate is going down — it’s just mathematical. Three-fourths of the reason is demographic. So get used to… ever-declining rates of unemployment.”
The Gluskin Sheff economist decried work force imbalances, with U.S. colleges producing more psychologists than engineers.