- According to economist David Rosenberg, there is an 85% chance that the U.S. economy will enter a recession in 2024.
- Rosenberg highlighted a relatively new economic model that has proven to be more timely than yield curve indicators.
- “Our confidence that the recession has been delayed but not derailed remains high,” Rosenberg said.
A new economic model highlighted by economist David Rosenberg suggests that the U.S. economy is likely to experience a recession in 2024.
Economic indicators using what Rosenberg calls a “full model” suggest 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 NBER's working paper and consists of a financial condition index, debt service ratio, foreign term spread, and yield curve level.
Rosenberg said the economic model is “better” than others because of its history since 1999 of providing timely warnings of recession without sending out false signals.
Notably, Rosenberg said that at the beginning of 2023, the model implied only a 12% chance of a recession, while the yield curve metrics suggested a 50% chance of a recession at the time. Ta.
“While the full model predicted a 'soft landing' seen in 2023, it now says the probability of a recession in 2024 has increased significantly,” Rosenberg said.
The model challenges the growing narrative that the economy is on track to achieve a “soft” or “no-go” scenario this year.
“Our confidence that the recession has been delayed but not derailed remains high,” Rosenberg said.
If a recession were to materialize, the consequences for the stock market would likely be dire, Rosenberg said.
“Although recessions are part of the business cycle and almost always follow a Fed rate hike cycle that continues past the yield point, asset classes that are pricing in the outcome are Almost none.”
The model Rosenberg used also helps explain why closely tracked yield curve metrics have historically been inaccurate at predicting recessions.
“This also explains why the yield curve did not work as a recession predictor from 2017 to 2019,” Rosenberg said. “The term spread offset the signal from the inverted US yield curve.”