17.8.10

Rosenberg: Odds of Double Dip Higher Than 50/50

The odds of a double-dip recession in the U.S. are “certainly higher than 50-50” and the economy could contract again by the end of this year, David Rosenberg, chief economist at Toronto-based Gluskin, Sheff & Associates said on Friday.

The recession may not have ended last year after all,” Mr. Rosenberg said in a video interview with WSJ.com. “This is a totally different animal than anything we’ve seen in the post-World War II period.”

Mr. Rosenberg has for months been cautioning that the economic recovery would lose momentum and the stock-market rally fizzle, a scenario that has largely unfolded in recent months. Gross domestic product growth has already slowed from 3.7% annualized in the first quarter to 2.4% in the second quarter, according to the Commerce Department, and more recent data suggest the second-quarter figure could be revised lower, closer to growth of just 1%.

That doesn’t leave the economy with much momentum heading into the second half of this year. Mr. Rosenberg expects third-quarter GDP will be “flat” and as for the fourth quarter, he said, “there’s a significant chance that the economy could be contracting again.

What makes the current downturn much different from its predecessors is “the credit contraction of historical proportions,” he said. “The range of outcomes right now is extremely wide, wider than I’ve seen in my professional lifetime.” Mr. Rosenberg reiterated his view that government and corporate bonds are the best bet for investors in this kind of environment, adding that the stock market is at least 15% to 20% overvalued based on his view of slowing economic growth.

To combat the weakness, he said, policymakers should forgo short-term stimulus policies such as cash for clunkers and instead cut corporate taxes to help foster job creation. “We need a war on unemployment,” Mr. Rosenberg said.

http://blogs.wsj.com/economics/2010/08/13/rosenberg-odds-of-double-dip-higher-than-5050/

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