Everyone in the investment business is a slave to numbers. Even when they are not to our liking, most of us secretly relish in the certainty and finality of them. Whether it's the Fed Funds Rate, corporate earnings, the number of autos sold in a year, or the price increase on single family homes, we dissect these numbers to offer us clues into the direction of markets and securities.
This brings me to what is currently driving me crazy. For months, we, at my investment firm, have felt, that the economy was improving; that the steady increase in jobs, the housing market, the bottoming of oil prices, and upward trend in hourly wages would translate into better GDP numbers. GDP – the queen of all numbers – the big jackpot of digits on which we all crave insight, seemed poised to break out of its semi-comatose 2 percent range for more than a quarter. However, despite what appear to be obvious signs of improvement, the estimates from nearly every single group that tracks GDP growth is stuck in economic anemia, with very few outliers. What is going on?
I am not the only investor confused by mixed signals. UBS published a piece last week called "Are Soft Data Predicting a U.S. Boom?
The authors describe a wide gap, seen in the exhibit below, between "soft data" surveys that would indicate growth of 3.7 percent in 2017 in contrast to their own internal models of actual economic activity which suggest a 2.1 percent growth rate this year. The surveys, which include consumer sentiment, small business confidence, and ISM manufacturing, are as bullish as they have been in ten years. Overseas economies, after a year of false starts, appear poised to emerge from the doldrums, which would incrementally boost US exports.