Famed economist David Rosenberg explains how the Saudi oil fiasco's impact on US consumers could hasten the next recession
Reuters / Mike Blake
- David Rosenberg, the chief economist and strategist for Gluskin Sheff, said the attack on Saudi oil facilities this weekend could knock down spending by US consumers, which he described as the last source of economic strength for the country.
- Consumer spending has remained strong even as manufacturing and other sectors have slumped, but Rosenberg said that could change quickly if gas prices spike and stay higher.
- He added that in a period of unprecedented economic turmoil, the last thing the market can afford is another source of uncertainty.
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David Rosenberg, chief economist and strategist for Gluskin Sheff, said the surge in crude prices - and the threats of long outages and future attacks - could do serious damage to the finances and spending of US consumers. And that, in turn, would knock out a critical peg that's keeping the economy upright.
"We already have back to back quarters of negative growth in industrial production," he told Business Insider in an exclusive interview. "Other sectors of the economy (like) commercial construction, housing, and capital spending ... have already entered their own particular recessions."
"Recessionary pressures in the economy are building," Rosenberg added. At the same time, he says, factors like the trade war and its effect on global growth and supply chains have created "an unprecedented period of economic and political uncertainty."
But a large majority of the US economy is made up of spending by consumers, and that part of the economy still looks great. To Rosenberg, that spending is the last thing preventing a recession.
"The only glue holding the economy together has been the consumer," he said. "This also is going to be a de facto tax increase for the consumer."
And a sustained increase in oil prices could erode it. More expensive gas could curb how much consumers are willing to spend and cutting into profit margins for companies that use crude oil in producing goods. That could push those companies to trim spending and cut back on hiring or eliminate jobs, which would feed back on consumer spending.
"If it doesn't lead to a recession it certainly will trigger a much lower profile for global GDP than anybody would have thought previously," he said, referring to the effect of higher oil prices and greater uncertainty.
That's the scenario he's been forecasting, as he's previously said he expects a recession in 2019. Even if it doesn't arrive in immediate fashion, Rosenberg said he doesn't think it's far off.
While investors can evaluate in specific risks like rising oil prices, Rosenberg added, there's no way to do that with so many questions swirling.
"For a business or for an investor is that inherently impossible to price uncertainty," he said.
That means the market itself is just going to be more unstable, and elevated uncertainty will ultimately lead people and businesses to hold onto their money instead of investing or spending it. That, too, could slow down growth and hammer the market.
Get the latest Oil WTI price here.
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