Rosenberg Says U.S. Economy May Shrink in Fourth Quarter as Autos Subside

The U.S. economy may fail to grow or even shrink in the fourth quarter as auto production subsides following a surge in the previous three months, said David Rosenberg, chief economist at Gluskin Sheff & Associates Inc.

“Almost all the growth we had in the third quarter” was due to auto production, Rosenberg, a former chief economist for North America at Merrill Lynch & Co., said on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “The fourth quarter could actually be flat to negative.”

Rosenberg’s forecast is more pessimistic than the median estimate in a Bloomberg News survey of economists last month, which called for a 2.3 percent annual growth rate in the last three months of the year. The economy expanded at a 1.7 percent pace in the second quarter, following 3.7 percent in the prior three months.

John Ryding, chief economist at RDQ Economics LLC in New York, said he expects growth of “around 3 percent” in the final three months of 2010. He said part of the slowdown in the second quarter was caused by “a big surge in imports which is not going to be repeated,” as companies bought foreign-made capital goods.

The economy shrank 4.1 percent during the 18-month recession that ended in June 2009, according to revised government data released July 30. Household spending fell 1.2 percent in 2009.

Both economists agreed that any move by the Federal Reserve to renew asset purchases would have little effect.

‘Big Mistake’

It would “be a big mistake,” said Ryding, a former Fed economist. “It wouldn’t do anything for the economy” and would promote “further increases in inflation expectations.”

“When you come off a post-bubble credit collapse, it takes years before you make the ultimate transition to the next sustainable bull market,” said Rosenberg.

Rosenberg said the U.S. “unquestionably” need a massive federal program to create jobs, similar to efforts launched by President Franklin Delano Roosevelt in the 1930s.

Ryding disagreed that the government should directly boost hiring. Both economists said government tax policy should provide incentives to hire.

The recovery “is inevitably going to be slow,” said Ryding.

To contact the reporter on this story: Tom Keene in New York at tkeene@bloomberg.net; Bob Willis in Washington bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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