Reality or nothing?

Posted by: Paul Donovan

08 Nov 2019
  • German manufacturing orders sentiment data plunged this year. Viewing the German economy through these numbers, it seems amazing that there are any German factories left. And yet, German factory orders were a little stronger in September. Real world factory orders have been stable since February.
  • In the United States, the ISM manufacturing output sentiment has shown production falling for the last three months. The reality is that production has been steady for six months.
  • The gap between manufacturing sentiment data and reality is the widest it has been for several years. Manufacturing sentiment is suggesting a depressed situation. In the real world the global economy has slowed below trend, but not far below trend. Sentiment is overreacting.
  • The global news cycle is focused on problems with trade. There are real economic problems from the trade conflict. However the media may sensationalize these problems. Sensationalism hurts sentiment. Survey responses can be hurt by negative news coverage.
  • This will be important if the US and China reach some kind of trade deal. Avoiding trade taxes would be an economic positive. Reducing trade taxes would be an economic positive. But the sentiment data impact may be greater than the real world impact.