The real story is the government sector, where the federal budget deficit swelled from $1 trillion in 2019 to $4 trillion last year. When it comes to government spending, “even LBJ would have blushed,” he said.
“This is not an organic recovery,” he continued. “We were in a modern-day depression. Checks in your bank accounts replaced soup lines.”
Some well-informed observers like JPMorgan Chase CEO Jamie Dimon have said the economy is likely to enjoy a boom that could last into 2023. Rosenberg isn’t one of them.
The government has produced an “illusory boom,” in his opinion. Fully “80% of the economy is already reopen.”
He concedes “we will see a boom” in pent-up demand in areas that were at the epicenter of the lockdown. But travel, casinos, theme parks and restaurants represent only about $800 billion in GDP.
“We’re getting all excited about 4% of the economy,” Rosenberg said. “How many vacations, haircuts or dinners out will you be taking?”
Conversely, another side of the economy that boomed during the pandemic, consumer durables, is likely to take a hit. Consumer durables are double the size of consumer services.
“How many more times will you remodel your house or buy another dinner table?” he asked. That’s why there will be an offset to the reopening boom.
Rosenberg thinks there will be a relapse in sluggish growth in this year’s fourth quarter, as the economy returns to some sort of secular stagnation that characterized the previous decade. He noted that the consensus on Wall Street that GDP will expand at 5.0% in the final quarter diverges dramatically from the Fed’s prediction of 2.0% growth in those last months.
If the Fed is right, that “could threaten the risk-on trade,” he said. “If you are of an inflation view, you are in a crowded trade.”