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This chart reveals economists may be overestimating the 'Trump bump'

President Donald Trump reacts after signing an executive order on education during an event with governors at the White House, April 26, 2017.
Carlos Barria | Reuters

Economists may be overestimating the growth boost President Donald Trump is giving the economy.

One way that may be showing up in is the Citi Economic Surprise Index, which is getting a lot of attention lately because of its sudden, negative move after surging for weeks after the election. The index is a widely watched indicator that captures when economists' forecasts for economic data turn out to be wrong — either because the economy is weaker or stronger than they thought.

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The index rises when economic reports, like jobs, retail sales and consumer confidence are better than expected. But it falls when the reports are not as good as projected, and it recently plunged into neutral after hitting the highest level of positive surprise in three years in March.

Citi Economic Surprise Index

Source: FactSet

That coincides with a string of weaker data, such as the March jobs, the consumer price index, retail sales data, the Empire Manufacturing survey and the Philadelphia Fed survey. Thursday's durable goods also came in below expectations, and so did Friday's first quarter GDP, even after economists chopped forecasts. Consumer sentiment was also short of forecast Friday, though it moved higher than last month.

"The Trump [policies] returned a part of the population to a normal level of confidence and that helped the indices explode higher," said George Pearkes, macro strategist at Bespoke Investments. He said the National Federation of Independent Business was a good example of that, as the small-business optimism index is off its recent high but still at the best level since 2004.

The chart shows that economists got the data wrong both before and after the November election. Pearkes said there are also other factors at work, like the impact of energy prices on the economic data, but Trump was certainly a big one.

Pearkes said the index shows that economists were not expecting the positive impact of a Trump win on the economy before the election. Once he won, the sharp jump in upside surprises, from things like consumer confidence, helped drive the surprise index higher. Then the surprises turned around.

"The point is they [economists] missed the impact of Trump and they brought their estimates in line, and they caught up to where the real data is at, and we'll see what happens," Pearkes said. He said it's not clear when the index will stop going down, but it's natural for it to constantly rise and fall.

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Of course, the chart could turn around just as quickly, particularly if there is some movement on the Trump policies that pushed confidence higher in the first place. Economists also expect to see a rebound in the second quarter, after they were forced to reduce first-quarter forecasts again and again after the disappointing economic data.

Citigroup economists, in a note this week, questioned whether "Trumponomics" and reflation have already run their course. They pointed to a mixed stream of economic reports, peaking commodities prices year over year, and the falling 10-year Treasury yield which dipped to 2.28 percent Thursday.

The Citi economists illustrated their note with a chart of the economic surprise index and noted that growth and inflation data have been mixed. "In addition, uncertainty on U.S. policy (including a less aggressive trade stance) has also raised concerns about whether the Trumponomic theme has also run its course," they wrote.

Pearkes said the index really is as much about economic forecasting as it is a measure of economic strength or weakness. "If it's high, it means economists have been too bearish on the economy, and if it's low, it's the opposite," said

"When Trump was elected we did see another big tick up in U.S. confidence indices, business, consumer whatever, and the way it looked in the data was that everyone thought the economy was going to be great, but it was that a chunk of people thought the economy was going to be terrible and then thought the economy was going to pretty good," he said.

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