Economist who predicted the 2008 recession reveals the five tell-tale signs US economy is on the brink of a downturn

An economist who accurately predicted the 2008 recession has forecast another downturn based on waning employment numbers.

Famed economist David Rosenberg made the dire prognosis following the release of June's nonfarm payrolls report Friday.

He told clients how despite a 206,000 job bump for the month, the results are somewhat foreboding - and hold at least five surefire signs the US economy is on the brink of a breakdown.

The first, and perhaps the most telling, involves full-time employment, which while up for the month, is down 1.2 percent year-over-year.

Declines of this level have coincided with every recession for fifty years, from the recessions of the early 1970s to the one a few years ago wrought by COVID-19 .

'Since the beginning of 2023, the nonfarm payroll data have been revised down 82 percent of the time,' Rosenberg wrote in the July 8 note, referencing that while headline numbers were strong, downward revisions were made to prior months.

'One thing we do know about revisions in the data, and in both directions, is that they have this historical tendency to be highly pro-cyclical and predictive of the direction of overall economic activity,' he continued.

He went on to point to what he painted as a weak breadth beneath the broader stock market, evident by a few stocks driving the bulk of returns.

'Nvidia alone accounted for nearly one-third of the S&P 500's total return in the first half of this year,' he explained, citing the tech stock as an example.

'Tack on Microsoft, Amazon, Meta and Eli Lilly, and 55 percent of the market's return came from just those five stocks.

'That is epic. So is the fact that 40 percent of the S&P 500 constituents are down for the year.'

Another example of poor performance outside of such stocks was a 4.3 percent decline in the small and mid-cap Russell 2500 index in Q2, he said - masked by the S&P 500's simultaneous rise of 4.3 percent.

He said such decreases show a need for the Fed to act urgently, as the labor market continues to weaken. He added how that is already happening, before offering three self-professed 'indicators' meant to prove his point.

One is that full-time employment, according to the Bureau of Labor Statistics' Household Survey, is, again, down 1.2 percent year-over-year - a startling statistic when you look at the history.

Back in 1973, the statistic took an eerily similar dip before declining steadily in the years thereafter.

This period would be come to known as The Recession - and Recovery - of 1973-1976, when the unemployment rate reached a postwar high of 8 .5 percent at the business cycle trough (March 1975) and did not peak until May 1975, when it hit 9.0 percent.

A few years later, the same would occur again - just before the 1980 recession and  the 1981-1982 recession the year after.

The same more than 1 percent dip happened again in 1989 before the early 1990s recession, before another in 2001 to mark the recession of the early 2000s.

Like clockwork, the same phenomenon would occur again at the start of 2008 to mark the Great Recession, bringing an end to a period of recovery and expansion known as the Great Moderation.

It was the largest economic downturn since the Great Depression, it was predated by an approximate 1 percent from in full-time employment from 2007 to 2008 - which went on to fall off a cliff by a further six percent the following year.

Rosenberg said something similar could be in store this year, based on the almost identical-dip seen the year prior.

another recessionary sign seen on the on the household survey, he said, is that overall employment growth is about to dip negative year-over-year - the first time since the pandemic seen during the recession and the Great Recession before that.

The last was that the year-over-year change in unemployment rate The unemployment rate has also risen by 0.7% from recent lows. The average over the last 11 recessions has been 0.5 percent.

The warning come months after Rosenberg, the founder of Rosenberg Research, aired skepticism over the state of the US economy  hours after April's jobs report fell short of expectations .

In notes to clients at the time, the former Merrill Lynch chief economist explained why he views the numbers as a cause for concern.

The US economy added 175,000 jobs the month before, shy of economists' forecasts for 238,000.

'The revisions will not be coming for another six months and when they do get released, it will come as a shock to the Fed - and to the markets as well,' Rosenberg said of the downward revisions that have since taken place.

'The Fed now intends to stay on the sidelines as it closely watches lagging and contemporaneous indicators that are littered with high error terms,' he went on.

'And the longer it waits, the more it is going to have to do on the rates front.

'Shades of 1991, 2001 and 2008 [all over again.]'

In addition to believing the jobs data is distorted, Rosenberg further claimed stock prices and valuations that have risen in recent months are also disconnected from reality.

Aired in another note to clients penned April 23, that warning claimed the burgeoning bubble created by booming stocks of companies focused on Artificial Intelligence could be about to burst - with the financier then pointing to since erased dips seen from AI proponents like Nvidia days before as proof.

'The market action last week was part and parcel of the air being let out of the AI balloon, with Nvidia experiencing its worst single-day drop since March 2020,' he explained, citing statistics that show how AI stocks have sputtered after climbing several hundred percent since 2022.

'The intense AI-fueled momentum to the upside is now heading in reverse,' he said.

As of writing, Nvidia shares have since soared, riding a wave created by the advent of AI that's seen its share price swell 178 percent in the past 12 months.

The 12-month moving average of revisions, meanwhile, stands at -447,000 - meaning the true state of the the nonfarm payroll data could be laid bare in coming months, depending on the actions of the Fed, Neil Dutta, the head of economics at Renaissance Macro Research, wrote in a piece for Business Insider this week.

'What the Fed does next will greatly affect the chances of avoiding a larger increase in unemployment,' he said.

'It spent the past few years raising interest rates in an attempt to slow rapidly increasing prices, but with inflation largely tamed, the risks have now shifted toward the labor market.

'Waiting too long to lower interest rates to support the economy will only increase the odds of the job market breaking down.'