Back in 2013, when David Rosenberg infamously flip-flopped from bear to bull on the "thesis" that everyone's wages (not just his), are about to rise, and that a jump in wage inflation would be the catalyst to unleash a broad economic recovery in the process crushing bonds, we were decidedly skeptical. We said that the only thing that had changed at the time, was the Fed's launch of QE3, which more than anything succeeded in fooling a great deal of otherwise smart people into believing that, like in China, the massive credit impulse-induced boost would be not only sustainable but lead to economic growth.
It did not.
Some three years later, not only is wage inflation nowhere to be found, but bond yields are about as low as they have ever been, over $10 trillion in global debt yields less than 0%, while increasingly more speculate that the outcome of the Fed's disastrous policies (and Obamacare) will be stagflation, as a result of stagnant wages coupled with soaring prices for such core services as healthcare, drugs, rent and education (not to mention the stock market bubble), tumbling productivity and economic output that keeps sliding.
To be sure, David Rosenberg did not take lightly to our crticism of his flip-flop leading to this infamous exchange from January 2015.
Fast forward nearly 18 months later, and it seems that it is time for another flip-flop from the former Merrill strategist.
But first by way of background, this is what Gluskin Sheff economist told the WSJ only this past February:
“I put the odds of a U.S. recession in the next year as close to zero as anything could be close to zero,” said David Rosenberg, chief economist at money-management firm Gluskin Sheff & Associates.
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.
Which brings us to today's when as Henry Blodget notes that David Rosenberg is once again back in the bearish camp and "thinks we are headed for a recession."
David Rosenberg thinks we're headed for a recession (jobs report not an anomaly and even worse than it looked) https://t.co/Xfamnb1M2U
— Henry Blodget (@hblodget) June 5, 2016
Here is Rosenberg's latest "analysis" as per BI, in the aftermath of Friday's stunning collapse in payroll growth:
We had been saying for some time that if there was something in recession in the U.S. it was productivity and that a huge gap had opened up over the past six months between weak business output growth and the pace of job creation.
Well, now we know how that gap is being resolved — with the latter playing catch-down to the former.
As everyone is left wondering “what happened?” here is what happened.
Productivity declined at a 1.7% annual rate in Q4 of last year and followed that up with a 1.0% drop in Q1. On average, labor input expanded at nearly a 2½% annual rate and nonfarm business output growth barely averaged 1%.
So do the math.
From last October to this past March, we had an unusual situation where aggregate hours worked outpaced production by a ratio of two-and-a-half to one.
Not sustainable.
The mean reversion means that it is pay-the-piper time in terms of what this means for the labor market.
Nonfarm payrolls rose a meager 38,000 in May and even accounting for the striking Verizon workers, the headline still would have been less than half the consensus estimate of +160,000.
This is the biggest “miss” by the economics community since December 2013, and the worst headline since September 2010 when the Fed was more preoccupied with its next round of quantitative easing than with raising the funds rate.
Not just that, but there were downward revisions to the prior two months totaling 59,000 — something we have not seen since June of last year.
Look at the pattern; +233,000 in February, +186,000 in March, +123,000 in April and +38,000 in May. Detect a pattern here (he asks wryly)?
You can see why I was gagging when I heard some of the pundits on “bubblevision” tell the anchors this morning that the Fed will look through one number. Dude — this isn’t one number, it is a pattern of softness that has been in effect for the past four months… and counting.
Ah yes, pundits telling anchors to look through numbers... here comes the latest flop:
I don’t want to alarm anyone but the facts are the facts, and the facts here is simply that this is precisely the sort of rundown we saw in November 1969, May 1974, December 1979, October 1989, November 2000 and May 2007.
Each one of these periods presaged a recession just a few months later — the average being five months.
So, wait, the odds of a recession in the next year are not "as close to zero as anything could be close to zero"? Truly so much changes in just 4 months, especially with the stock market soaring since Rosenberg's made this statement to just shy of alltime highs.
There was just one time, in the 1985/86 oil price collapse, that we had such a huge decline in goods-producing employment without a recession lurking around the corner — but the Fed was easing then and fiscal policy was a lot more accommodative than is the case today.
Not even the job slippage in goods-producing sectors during the 1995 soft landing and the 1998 Asian crisis were as severe as what we have had on our hands from February to May.
For such a long time, the service sector was hanging in but services ultimately service the part of the economy that actually makes things.
Private service sector job gains have throttled back big-time — from +222,000 in February to +167,000 in March to 130,000 in April to +25,000 in May (ratified by the non-manufacturing ISM as the jobs index sagged to 49.7 in May from 53 in April — tied for the second weakest reading of the past five years).
The sudden bashing of the economy continues:
Once again, a discernible pattern here, but it is where the slowdown is taking place that is most disturbing.
More than one-third of the weakening we saw in the private services sector came in temp-agency employment where employment shrunk 21,000 in May, down now in four of the past five months and by a cumulative 64,000 which is a losing streak we have not seen since August 2009.
In fact, this type of weakness over such a stretch, again not to sound like an alarmist, occurred just prior to economic recessions in the past, without exception and with no “head fakes”.
Yes, it typically is not good news when the headhunters are the ones to start chopping off heads — this is a leading indicator. So I may not want to sound alarmist, but the answer is yes … I am worried.
In fact, the weakness in employment has broadened out rather dramatically — this is not just a one or two sector phenomenon. This is not just about factories cutting back, shale weakness affecting mining or constraints within the reregulated financial sector.
* * *
The bottom line is that no matter how shockingly weak the headline numbers were, the details were even worse.
Yes, truly a shock to anyone who was spoonfed the government's recovery propaganda without digging deeper behind the numbers.
As for his conclusion:
We were always skeptical over all this rate-hike chatter of late, which seems to have just come out of nowhere, but for the Fed to tighten policy in the face of this extremely sluggish job market backdrop would be more than just a touch bizarre.
Then again, Fed officials have also told us that they are data-dependent and let’s face it… there is no smoking gun in the employment data, that is for sure, and there are no data points as important as the labor market.
This is a game-changer.
Yes indeed, and now we look forward to every other economist's "narrative pivot" in the coming weeks, economists such as another former data cheerleader and permabull, DB's Joe Lavorgna, who frontran Rosenberg's latest flip-flop conversion by about 6 months, and who as we reported yesterday, warns that the next US recession may start as soon as next quarter.