Rosenberg Says U.S. Economy Is on `Knife's Edge:' Chart of Day By Thomas R. Keene and Brendan Moynihan Nov. 1 (Bloomberg) -- The U.S. economy is ``on a knife's edge,'' and growth may slump to less than a 2 percent pace next year unless the Federal Reserve cuts interest rates, according to Merrill Lynch & Co. economists. ``Our recession-risk indicator is now at 51 percent odds for an actual economic downturn in the coming year,'' writes David A. Rosenberg, chief North American economist at Merrill Lynch in New York, in a note today. The last time the indicator registered that high was in the recession year 2001. product growth, adjusted for inflation, compared with Rosenberg's forecast of 2 percent growth in 2007 (the blue line). The 10-year trend in real GDP growth is shown in green. Rosenberg says his forecast for next year is ``predicated on the Fed cutting rates to 4 percent next year'' from the current 5.25 percent. ``Without that stimulus, growth could well be closer to a 1 percent to 1.5 percent range,'' he says. That's ``weak enough to be considered in the `hard-landing' zone,'' he says. Merrill Lynch's indicator also bodes poorly for stocks. The S&P 500 averages a 12-month return of only 1.9 percent when the recession risk indicator is between 50 percent and 60 percent, Rosenberg says. ``Once you are above 50 percent on recession risk, the probability that the market is higher in the next year is barely more than 50 percent (a flip of the coin),'' writes Rosenberg. Editor: Rohner To contact the reporter on this story: Thomas R. Keene in New York at tkeene@bloomberg.net . Last Updated: November 1, 2006 12:29 EST
``Once you are above 50 percent on recession risk, the probability that the market is higher in the next year is barely more than 50 percent (a flip of the coin),'' writes Rosenberg. Isn't there a technical term for this? I can't think of it, and it's driving me crazy. A little help.