DAVID ROSENBERG: The 3 Biggest Headwinds To The US Economy

The U.S. economic recovery has been weak and the looming fiscal cliff threatens to act as a further drag on the economy.

Gluskin Sheff economist David Rosenberg says this is the softest recovery ever recorded considering the massive government stimulus over the past three years. And the fact that recovery has been so weak shows that policymakers still face three major headwinds.

First, the U.S. is still in “the throes of a consumer debt paydown cycle which is unprecedented and inherently deflationary.” It typically takes six – seven years before deleveraging cycles are done and the U.S. economy is still not even at halfway through running its course.

This chart shows that household debt/assets and debt/income show a notable reversal but the mean-reversion phase has a way to go:

consumer delevraging chart gluksin

Photo: Gluskin Sheff & Associates

The next major headwind according to Rosenberg is housing. The nationwide vacancy rate is still undergoing a long-term mean-reversion phase, in which it could take years before the excess inventory is absorbed to a degree that it could support real estate prices.

housing chart gluskin

Photo: Gluskin Sheff & Associates

The final headwind is unemployment which has caused caused “never-before-seen wage disinflation, especially for an economy deemed to be out of a recession”:

unemployment chart gluskin

Photo: Gluskin Sheff & Associates

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