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Economy on Solid Ground But Risks Remain: David Rosenberg

Daily Ticker

Lately it seems the more data we get, the weaker the U.S. economy becomes. On Monday, existing home sales for June disappointed, following last week’s lower than expected housing starts and retail sales numbers. Offsetting some of those weaker numbers were a boost in home prices and homebuilders confidence and increasing industrial production.

David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, isn’t too worried about the disappointing data. He tells The Daily Ticker, “My new theme is escape velocity no, but terra firma yes. There’s a firmer floor under the U.S. economy now than there used to be” and the “downside risks… have diminished considerably.”

Related: Weak Retal Sales Means Fed Tapering Later vs. Sooner

Rosenberg expects the fiscal drag from budget cuts will dissipate next year and the Fed will move very slowly in removing its monetary stimulus.

But, as always, risks remain. Rosenberg says the major risks will not be domestic but “come from abroad. “ Among the potential risks he sees:

  • The September 22 German election. What happens in Europe after that?
  • Possible spreading European recession. That could hurt U.S. export and manufacturing sectors.
  • Some action in emerging markets.

Indeed, the IMF recently downgraded global growth forecasts for this year and next. It now expects the euro area will remain in recession this year and grow less than 1% in 2014, and emerging market economies will grow about 5% this year and next.

Related: $2 Trillion Shadow Economy Not Counted in Jobs Numbers

As for the U.S. economy, Rosenberg recently wrote that the 195,000 jump in payrolls and upward revisions for April and May was a “game changer… the third act” of a recovery that started with healing in the credit markets (2009-2010), then the housing market (2011-now) and now the labor market.

"When all is said and done, all that matters is the income that the job market is generating,“ wrote Rosenberg, noting that wages have increased at a 6.5% annual rate over the past three months and that “much (though not all) of the deleveraging cycle is behind us.”

Related: Good Jobs Support in Dysfunctional Economy Puts Fed Taper on Track for Sept: Economist Brusca

President Obama, in the meantime, does not seem so sure about the economic recovery. He begins a series of speeches Wednesday focusing on what the White House calls “the cornerstones of what it means to be middle class in America: job security, a good education, a home to call your own, affordable health care when you get sick, and the chance to save for a secure, dignified retirement” and how Congress and business can help in that effort.

The video above provides some context for the president's upcoming speech.

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