Is Brexit messing with our minds?

Posted by: Paul Donovan

05 Apr 2019
  • The media and politicians are excited about Brexit. Normal people are bored by Brexit. Over six million people signed a petition to stay in the EU. They were mostly Londoners. Outside cities few people signed. Northern Ireland had the least interest. UK sentiment surveys have reacted, or overreacted, to the noise. The UK is showing that surveys do have problems.
  • UK manufacturing sentiment rose, as reported inventory levels rose. However, surveys are broad, but not deep. If everyone increases inventory a tiny amount, the survey measure will rise a lot. The economic change will be tiny.
  • UK service sector sentiment fell. However, the service sector has often strengthened when this has happened in the past. Service sector job vacancies are at all-time highs today. Firms are still hiring. Sentiment may be another "false signal". The media influences people. If there is a big negative story, people will say they are negative even if they are positive. This is a type of "social desirability bias".
  • Other countries have similar issues. The gap between Republican and Democrat consumer sentiment in the US is another example. Media is ever more sensational. In such a world, investors should remember people may say and do different things.

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