Recession Odds From Rosenberg

David Rosenberg, chief economist at money-management firm Gluskin Sheff & Associates, went way out on a limb today.

Even though oil broke $30 to the downside again today, bond yields have crashed, and the price of many commodities is below the cost of production, Rosenberg made this statement today as quoted by the Wall Street Journal:

I put the odds of a U.S. recession in the next year as close to zero as anything could be close to zero.

A spike—not a fall—in oil prices preceded or accompanied every recession since the 1970s. “This is the first time I’ve ever heard the economic intelligentsia talk about how lower oil prices are going to trigger a recession in the United States,” said Mr. Rosenberg.

Many initially viewed these forces as transitory, but cratering global demand raises the risk the U.S. can’t forever outrun them. The culprit: an oversupply of labor and capital in emerging markets that amassed big debts to build new production facilities over the past five years.

This oversupply abroad helps explain why U.S. wage growth has been so weak despite a headline unemployment rate that has reached 5%, said Daniel Alpert, managing director at Westwood Capital, an investment-banking firm. Higher wages in the U.S. simply drive jobs to lower-cost countries that have an oversupply of workers.

Economic gauges already indicate an industrial recession. The Federal Reserve reported this month that its index of industrial production had fallen 1.8% over the year ended December, a drop that has always been accompanied by a recession since the 1970s.

Economic forecasters have played down worries about a contracting manufacturing sector or a trade slowdown because each accounts for a relatively small slice of overall growth, which allowed the U.S. to motor past similar slumps in the past.

Small Slice Myth

The Wall Street journal repeats the myth manufacturing does not matter because consumer spending drives the economy.

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