Don't worry (too much)

Posted by: Paul Donovan

07 Jun 2019
  • Business sentiment opinion polls (PMI, ISM, etc.) have been very negative. Factual economic data has been less negative. Should sentiment worry us?
  • Sentiment data tends to overreact to the real world. When the gap between sentiment and reality does widen, it takes some months for the level of sentiment to correct back.
  • There are problems with survey data. Today one cannot buy a sandwich without being asked to fill in an online survey. People are fed up, and have stopped filling in surveys – official and commercial. If someone is weird enough to fill in a survey, it is normally because they want to complain. Surveys thus can have a bias. Media has become ever more dramatic. This can influence what people say, without changing reality.
  • Trade taxes a good example of why surveys and reality diverge. The taxes are always in the news. Companies are reacting to the threat, in a measured way. But people tend to be dramatic (and negative) about the threat.
  • Investors should pay attention to the real world. The data does show US trade taxes doing economic damage. The trade taxes may do more economic damage. But things are not as bad as the sentiment data suggests.