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Get dirty with data

| Posted by: Paul Donovan | Tags: Paul Donovan Weekly

One of the many problems economists face is the growth of soundbite economics. Economies are complex things. Investors crave simplicity. Investors use aggregate data. This turns multiple data points into a single, easily tweetable number.

Some recent US employment data was weaker than expected. The details of the US employment report show a strong labor market. The ISM sentiment data has weakened. US GDP was better than expected. Some headline data in Europe has been weaker than expected. The details show the European economy has firm trend growth.

It is easy to distort summary and headline data. Weather, the timing of holidays like Easter, and other unexpected events (like a flu epidemic) change data.

Economists know that they have to "get their hands dirty" with data to understand the economy. It is important to look at more than the main number and dig beneath the surface. This is what central banks do. This is why we still expect policy tightening this year. Under former Fed Chair Greenspan the Fed trebled the number of data series it watched, to 14,000. The OECD's US leading indicator has seven data series. The leading indicator is simple. It is no substitute for proper economic understanding.