David Rosenberg is today's celebrity economist. Maybe this is deserved: His record in calling the economic crash was quite good.
His record in calling, or even acknowledging, the recovery? Less impressive.
That has led some to think Rosenberg is a permabear clinging firmly to his once-right predictions of doom. Such was the case in a recent musing of his with a subhead that reads, "You know it's a depression when, 33 months after the onset of recession ..." followed by 13 bullet points describing our dismal state of affairs.
Most of Rosenberg's points are accurate, but hardly indicative of a depression. (Reason No. 3: "Real GDP is down 1.3% from the peak" ... oh, heavens! One percent!?) Some are flat false. Others I find off the mark. For example:
Rosenberg's reason for depression No. 10: "Housing starts are still down 63.5% from the peak"
That's because we had a bubble. It was the past numbers that were scary, not the current ones. Builders such as KB Homes (NYSE: KBH) and Pulte (NYSE: PHM) went on drunken rampages and built way, way more supply than was necessary. The fact that housing starts have collapsed is perhaps the single most optimistic statistic in the housing market today. It means past excess is being soaked up. That's a good thing. Revisiting housing starts' previous highs is a surefire way to dig the market deeper into a hole.
Put another way, Rosenberg seems to think we're in a depression as long as we're not replicating past bubbles.
Rosenberg's reason for depression No. 13: "Non-residential construction is still down 35.7% from the peak"
Again, bubbles. Comparing current levels to bubble highs and concluding that we're in a depression is like assuming you must be freezing to death after coming down off a fever. Take a longer view of non-residential construction, and you'll see that current levels are roughly were they were in 2006. It was 2007-2008's high that was the anomaly. Not today's level.
Rosenberg's reason for depression No. 2: "Corporate profits are still down 20% from the peak"
False, actually:
Using the numerical data from the chart above shows annualized corporate profits in the most recent quarter came in at $1.372 trillion, up from $1.369 trillion in early 2007. That's a new all-time high. Roughly half of the Dow Jones Industrial average, including Merck (NYSE: MRK), AT&T (NYSE: T), and Procter & Gamble (NYSE: PG), earned more in the past 12 months than they did in 2007. I'm not sure I'd call that a depression.
It's bad out there, particularly on the employment front. Rosenberg's reason for depression No. 5: "Employment is still down 5.5% from the peak," is his most credible. Still, there's a crowd of otherwise intelligent people bent on the notion that every economic data point that remains below the bubble-formed peaks is evidence of a depression. I think that's a dangerous mindset. A more sound approach is realizing that the cause of our recession was that those data points were too high to begin with. Until the population is big enough, we don't want construction to return to previous levels. We don't want lending standards to fall to previous levels. We don't want debt to return to previous levels. We don't want the trade deficit to return to previous levels. The fact that all these data points have plunged is not, I don't think, evidence of a depression as much as it is evidence of newfound stability.
