Reports of recession’s death may be exaggerated, economist tells NICC

Contrary to bullish analysts, the U.S. economy – and by extension, the Canadian economy – is a long way off from recovery, according to David Rosenberg, Gluskin Sheff & Associates chief economist and strategist.Rosenberg presented his seminar topic, ‘Focus on the Forest, Not the Trees,’ at the 2010 National Insurance Conference of Canada in Montreal on September 20.The ‘perma-bear’ analyst offered a reality check for those bullish analysts who have acknowledged the U.S. economy is in a deep recession, but, following a typical ongoing credit cycle, will experience a sharp ‘V-shaped’ recovery.”The reality is, we’re in a secular bear cycle,” Rosenberg said. “The credit cycle is broken and it will take years to repair.”The U.S. economy, while not as powerful as it once was, still “packs a punch” and will inevitably affect the Canadian economy with a six- to nine-month lag time, he warned.Typically a year after a recession ends, an economy should see 7% to 8% growth, he said. But, when looking at the U.S. economy’s “real final sales” – or in other words, consumer spending, residential construction, commercial construction and net exports, or the GDP, excluding stimulus and inventories – the picture is bleak.”When we strip out the inventories, we see 0.9% growth of real final sales, and that’s after the world’s largest stimulus and bailout known to mankind,” Rosenberg said. “What do you do for an encore? Something’s not working here. We should be seeing 7% or 8% growth, and we’re seeing below 1%, stripping out inventories.”Rosenberg also noted home and auto sales are lead indicators coming out of a recession. “Mortgage applications are as low as they were in 1996, despite the fact that we have the lowest mortgage rates ever,” he said.”Auto purchases are where they were in 1983, around 9 million units at an annual rate, when the population was a third less than what it is today. If this [recession] was normal, given where interest and financing rates are, auto sales should be at 16 million.”