Hard Versus Soft Data: By the Numbers


by Deidra Krys-Rusoff
Senior Vice President

The Week in Review

Most markets, international stocks and the U.S. Dollar ended the week near where they started. Stocks are quietly ending a strong first quarter, with this week leaving the S&P 500 up a little over 1 percent and the Dow Jones up about 0.5 percent. The benchmark 10-year Treasury yield held steady, trading approximately at 2.40 percent, which is very close to where it began the week and the year. Oil, trading close to $50 per barrel, headed for its biggest weekly gain this year on speculation that OPEC will curb output.

March: By the Numbers

We’ve seen an increase in recent research that pits hard data against soft data. Hard data is quantitative and can be measured in numbers or facts that can be proven. Soft data is a qualitative measurement that reports opinions, suggestions or interpretations and can reinforce or contradict what the quantitative, or hard data, may otherwise represent. Today’s key economic releases showcase some of these differences, with consumers reporting satisfaction with their current financial situation while slowing down their spending.

Soft Data

Today’s consumer confidence survey numbers, as reported by the University of Michigan, reflect that Americans are feeling quite positive about their current financial situation, with sentiment holding close to its healthiest levels in the last decade. However, this optimism was offset by a reported rise in uncertainty.

The March report states that, “Among all families, 50 percent reported that their finances had recently improved, while just 18 percent reported worsened finances. This was the best net financial assessment since 2000. When asked to explain how their finances changed, half of all households mentioned income and wealth gains.”

The survey was completed prior to Congress’ healthcare showdown, which may impact next month’s results. For a brief synopsis of the healthcare discussion you can also read last week's Weekly Market Maker article, "How Sausage is Made," by Ralph Cole, CFA.

Hard Data

Today’s published economic indicators, the “hard data”, reported mixed results. Inflation hit the Federal Reserve’s stated target, consumer spending was troubling, personal income and wage growth were strong and growth domestic product number estimates are being lowered. Details below:

Strong: The Federal Reserve’s preferred inflation measurement, the personal consumption expenditure (PCE) deflator, reported a year-over-year gain of 2.1 percent above the Fed’s target of 2.0 percent. Core PCE remains slightly below that level at 1.8 percent. These numbers may encourage the Federal Reserve to continue upon their planned gradual interest rate hikes later this year.

Weak: Consumer spending slowed for the second month in a row, coming in at a scant growth rate of 0.1 percent. If this trend continued into March’s reported numbers, we could be heading towards the worst quarterly performance since 2009. This trend may reverse, since it appears to be related to February’s unseasonably mild weather and impacted by the late processing of income tax refunds this year. Also, the first quarter number tends to show a historic recurring pattern of weakness, due to other seasonal impacts upon the underlying numbers.

Strong: Year-over-year pace of personal income gained 4.6 percent, with wage and salary income growing at 5.5 percent - the fastest growth pace since mid-2015.

Weak: Spending on durable goods (products generally lasting three years or longer, such as automobiles, big appliances, etc.) decreased 0.1 percent in February. This follows January’s plunge of -1.1 percent.

Strong: Disposable income (money left after taxes), showed a slight increase of 0.2 percent.

Weak: Gross domestic product (GDP) forecasts are being adjusted downwards, after the spending numbers release. The Atlanta Federal Reserve branch revised their first quarter GDP forecast to 0.9 percent from 1.3 percent and other economists have followed suit. Consumer spending has been the biggest contributor to the economic landscape linked to GDP, since it has been the most significant component of gross domestic product growth in the last few quarters.

Strong or weak? The personal savings rate increased to 5.6 percent. This result can be interpreted as either strong or weak - strong for the consumer’s personal balance sheet but can also detracts from consumer spending. This number is slightly higher than the historic average of 5.0 to 5.5 percent.

Our Takeaways for the Week

  • University of Michigan’s Consumer Sentiment survey reported that American’s are feeling positive about their finances

  • Inflation hit the Fed’s target of 2.0 percent

  • Consumer spending was weaker than expected and GDP estimates are being revised down

  • Personal income and wages grew at a healthy pace in February