A recession is likely to hit the US economy in 2024, per the economist David Rosenberg.
Rosenberg's economic indicator, referred to as the "full model," indicates an 85% likelihood of a recession occurring within the next 12 months. This is the model's highest reading since the 2008 Great Financial Crisis.
The model, based on a working paper from the National Bureau of Economic Research, incorporates financial conditions indexes, the debt-service ratio, foreign term spreads, and the level of the yield curve.
Rosenberg highlighted the superiority of this economic model over others, as it has consistently provided timely recession warnings without generating any false signals since 1999.
In early 2023, the model suggested only a 12% chance of a recession, contrasting with the yield-curve indicator's 50% odds at the time. This accurate prediction led to the "soft landing" observed in 2023. However, the model now indicates significantly heightened recession probabilities for 2024.
This challenges the prevailing narrative of an imminent "soft landing" or "no landing" scenario this year. Rosenberg maintains a strong belief that while the recession may have been delayed, it has not been averted.
Should a recession occur, Rosenberg believes it could have severe repercussions for the stock market. He noted that few asset classes are currently priced to accommodate such an outcome, despite recessions being a natural part of the business cycle, often following a Fed rate-hiking cycle that extends beyond the point of yield curve inversion.
Rosenberg's model also sheds light on why the yield-curve indicator has not accurately predicted a recession. According to him, favorable financial conditions, low debt service obligations, and positive foreign term spreads have offset the inverted U.S. yield curve's signal, rendering it ineffective as a recession predictor from 2017 to 2019.
