Experienced economist David Rosenberg warns that the US economy is facing a serious recession, despite hopes of a slight downturn. He says the Philly Fed has warned of a recession eight times out of eight, a factor that could lead to a drop in the S&P 500 index and home prices.

Who is David Rosenberg?

David Rosenberg is a Canadian economist and analyst who served as chief North American economist at the investment firm Merrill Lynch and later at Gluskin Sheff + Associates. In 2020, he became president of Rosenberg Research, an investment research and advisory firm. Rosenberg is known for his outlook on the U.S. economy and financial markets, and he frequently warns of potential economic risks.

Rosenberg has warned that we cannot expect a mild downturn as the U.S. economy at the moment looks like it will fall into a serious recession.

"Look at this chart and tell me we are headed for a 'mild' or 'no' downturn," he tweeted. "More likely a 'crash'."

The veteran economist was referring to the Philly Fed's monthly survey of manufacturers , which recorded its seventh consecutive negative reading in March. More than 34% of firms surveyed reported a decline in activity, and both new orders and shipments hit their lowest levels since May 2020.

Rosenberg attached a chart showing that this metric has fallen sharply during each of the last eight recessions.

"The Philly Fed is at a level that has proven to be a recession warning in eight out of eight cases," Rosenberg said.

https://twitter.com/EconguyRosie/status/1636381181024542722

Rosenberg has been warning about financial markets and the economy for a long time 👇

"Another sign that Powell has sucked out the last drop of hope," he tweeted earlier in the week. He was commenting on the fact that stocks didn't rise because he and some investors didn't count on a rate hike. But that also proved to be wrong, with the Fed raising rates by 25bps yesterday. By the way, you already know that too if you subscribe to our morning newsletter 👇

The Fed (Federal Reserve) raised rates by 25bps to 4.75% to 5% in March 2023, matching the hike in February and pushing borrowing costs to new highs (the highest level since 2007) while inflation remains high. The decision came in line with most investors' expectations, though some believed the central bank should pause the tightening cycle to bolster financial stability.

Recently, Rosenberg said the threat of inflation has receded and a US recession is almost guaranteed. He also warned that the S&P 500 index could fall about 25% from current levels, and home prices could fall 30% below their peak last year.

Inflation rose to a 40-year high last year, prompting the Fed to raise interest rates from near zero to the 4.75%-5% range in the past 12 months. Higher rates raise the cost of borrowing and encourage saving over spending, which can slow the pace of price increases.

However, they can also dampen demand, increase unemployment and lower asset prices, increasing the likelihood of a recession. In addition, they can put pressure on banks' bond holdings as bond prices move inversely to interest rates. This was a factor in last week's market turmoil at Silicon Valley Bank.

Please note that this is not financial advice.