In the months following the election of President Donald Trump, economic data have been on an upswing.
Survey measures of expectations such as consumer confidence, purchasing manager surveys, and regional Federal Reserve surveys have all seen booms. Citi’s US economic surprise index — a measure of economic data’ performance against expectations — has been pushed to multi-year highs.
There’s only one problem: This boost may not be as good as it appears.
Much of the recent uptick in economic data has been due to “soft data,” or data from surveys and sentiment readings, as opposed to “hard data,” or actual measures of economic activity.
According to Gluskin Sheff’s David Rosenberg, the stronger survey data doesn’t show the full picture. Not only is “hard data” weak, but many of the underlying measures of actual activity in the surveys have failed to meet expectations, while survey questions about sentiment are pushing the “soft data” higher.
For one thing, housing surveys have softened up in the past few months.
“The NAHB housing index peaked in December at 69 and proceeded to drop to 67 in January and 65 in February,” said Rosenberg. “There has been a notable decline in both buyer traffic and sales expectations. The AIA Architectural Index slid from 55.6 in December to a four-month low of 49.5 as of January.”
While manufacturing surveys have been soaring post-election, the enthusiasm hasn’t translated into higher expectations for investment or hiring.
“It is also interesting to see how that ripping Philly Fed manufacturing index for February showed only a modest uptick in capital spending plans — to 22.1 from 21.9 and really no higher than it was right before the election,” said Rosenberg. “Go figure. Hiring intentions also collapsed to 28.5 from 38.6, and yet I didn’t see this factoid mentioned on bubblevision.”
Small business enthusiasm has crept up since the election, which Trump’s own team has noted. Rosenberg said there is a problem there too.
“The NFIB index also edged up to a cycle high and yet again, capex plans dipped to 27 from 29 and also stands where it was just prior to the November election,” said the note. “Ditto for hiring plans.”
The issue here, based on Rosenberg’s analysis, is that not only is “hard data” not following the surveys, but the surveys themselves aren’t indicating an actual increase in economic activity. Instead, the jump has come from businesses and consumers saying that they believe the general economy will get better.
In order for that to happen, businesses actually have to spend more on capital more or hire more, and so far the surveys don’t indicate that firms intend to make those investments.