- Economist David Rosenberg says there's an 85% chance the US economy will fall into recession in 2024.
- He highlighted a relatively new economic model that has proven more timely than yield curve indicators.
- “While the recession is delayed, our confidence remains high that we are not off the rails,” Rosenberg said.
A new economic model proposed by economist David Rosenberg suggests the US economy is likely to fall into recession in 2024.
The economic indicators, which Rosenberg calls the “perfect model,” suggest there is an 85% chance of a recession within the next 12 months.
This is the highest value for the model since the 2008 financial crisis.
The model is based on a current paper from the National Bureau of Economic Research and consists of the financial conditions index, debt service ratio, foreign term spreads and yield curve levels.
Rosenberg said the economic model is “superior” to other models because it has a track record since 1999 of providing timely warnings of recession without giving off any false signals.
He noted that as of early 2023, the model suggested a recession was only 12% likely, while the yield curve indicator showed a 50% probability of a recession.
“The full model was predicting a 'soft landing' that we're seeing in 2023, but now it's saying a recession is very likely in 2024,” Rosenberg said.
The model casts doubt on the widely held view that the economy will achieve a “soft landing” or even a “no landing” scenario this year.
“While the recession is delayed, our confidence remains high that we are not off the rails,” Rosenberg said.
He said if a recession were to materialize, it would likely be devastating for the stock market.
“Although recessions are part of the business cycle and most often occur on the heels of a Fed hiking cycle that continues beyond the inversion of the yield curve, few asset classes are pricing in such an outcome,” Rosenberg said.
The model used by Rosenberg also helps explain why the closely watched yield curve indicator has historically been inaccurate in predicting economic downturns.
“This also explains why the yield curve did not function as a predictor of recession from 2017 to 2019: accommodative monetary conditions, extremely low debt service obligations and favorable foreign term spreads offset any signals from an inverted U.S. yield curve,” Rosenberg said.
