There are still some bearish commentators who have not changed their tune. David Rosenberg, Chief Economist & Strategist with Gluskin Sheff + Associates Inc. is one. He is calling for an L-shaped recovery because he doesn’t think U.S. consumers will resume spending like they usually do after a recession. Here, to that effect, are some excerpts from a recent Rosenberg note on the U.S. economy and financial markets.
• In an L-Shaped recovery … the growth rate is choppy, sloppy and toppy. It is below-trend and deflationary.… We are now coming off a $14 trillion loss of household net worth, which represents a 20% implosion of the consumer balance sheet coupled with a post-bubble credit collapse, which means that despite the government stimulus, the economy is going to be limping along for a prolonged period of time as savings rates rise and debt ratios decline.
• In the next economic recovery, whenever it comes … we are most likely going to be dealing with the idea that household credit ratios will undergo a secular, intentional and steep downtrend and that is where conventional interpretation on the business cycle is most likely to go awry.
• It is next to impossible for the economy to recover without the household cash flow generated by credit and income. And both are still contracting as we type. In terms of income, we see today that the Bureau of National Affairs has released its index of future private industry wages and it came in at -0.6% QoQ in the third quarter for the sixth quarterly decline in a row.
• … U.S. banks are seeing their asset base shrink and in the last 13 weeks, bank lending to households and businesses have contracted at nearly a 9.0% annual rate, which is unprecedented.
Rosenberg sees other warning signs. They include credit tightening in China.
• China has succumbed to signs of credit tightening after the lending boom of the last several months — page 19 of the Financial Times reports that bank lending in July collapsed 77% MoM as stricter regulations were unveiled —the lowest since last October when the stock market was still searching for a bottom.