Recent economic data made murky by ups and downs of real world
Even though there will be plenty of economic news to discuss in the days ahead, this week is fairly light for economic data releases. Just a handful of reports will come out that cover jobs, housing and consumer sentiment.
However, we’ve noticed a trend within the data itself over the last few months. A lot of major reports have been affected not by the fundamentals of what’s going on in this economy, but by “noise.”
Whether it’s big weather events like storms and hurricanes, labor strikes or optimism and concern about the new administration’s policies, they’ve affected the economic data lately. Economists have been wading through the muck.
The thing about noise — whether it’s literal or the figurative kind — is that it can be distracting. Like if construction or home sales surge in the months after a natural disaster.
“You would never take that as a trend because you can’t judge the economy just from that one rebound,” said Jennifer Lee, a senior economist with BMO Capital Markets.
She said a really noisy factor has been the prospect of new tariffs.
Some businesses have been loading up on inventory, for example. “It could be reflecting business expectations of tariffs. It may not be a reflection of consumer demand,” she said.
Another factor muddying the economic picture recently is survey data of consumers, manufacturers and small businesses.
Tim Duy, chief U.S. economist at SGH Macro Advisors, said people’s answers are heavily influenced by their political preferences.
“The Democratic respondents see a larger increase of inflation going forward. And the Republican respondents see inflation just disappearing,” he said.
That’s not useful information, Duy said, because people’s opinions don’t tend to reflect what they actually do.
“You know, people might be saying that they think that confidence is down, but if it doesn’t change their spending behavior, then their feelings are really not that important,” he said.
Economists can always ignore certain sets of data or average it out over several months.
George Pearkes, macro strategist at Bespoke Investment Group, said that after the recent hurricanes in the South, he looked at how unemployment claims and home construction in the affected states deviated from the data in similar states.
“So then we can sort of take into account how big this shock looks like it was, and whether that will have a major impact on national economic growth,” he said.
So far, Pearkes said, none of the economic shocks over the last few months have even dented the economy.
“For now, what’s much more important is a pretty solid labor market, pretty solid wage growth, strong household balance sheets, moderating inflation,” he said.
As long as those factors hold steady, Pearkes said, the economy should be fine.