Vibes vs data

Rob Armstrong (0:06)

Pushkin. Tomorrow is Liberation Day, the day that Donald Trump reveals the secrets of his trade and tariff policy at last. But what exactly is it that we're being liberated from? It's no secret that markets, investors and companies are all feeling a little bit jumpy about the state of the economy. Are they right to worry? Today on the show, we take a look at the numbers and figure that out. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong. I write the FT's Unhedged newsletter and I'm the sometime host of this show. I'm joined today by my very able second in command, Aiden Reiter.

Aiden Reiter (0:58)

Pleasant tidings.

Rob Armstrong (1:00)

Aiden, you and I have been thinking about the economy a lot and the way we've been thinking about it is in terms of this dichotomy between two kinds of data, the soft data and the hard data.

Aiden Reiter (1:10)

Yeah. Is it real or is it fake?

Rob Armstrong (1:12)

Yeah. The soft data is not data about like soft things like soft serve ice cream and down comforters. Soft data is about sentiment, what people say, how they say they feel, what they express. Hard data is about what people do, what they are buying or not buying, what they are selling or not selling. We see a pretty big divergence between hard and soft. Yeah.

Aiden Reiter (1:37)

We definitely see a divergence. Or maybe there's a delay. It's kind of unclear.

Rob Armstrong (1:40)

Yes.

Aiden Reiter (1:41)

What we can say is originally when the market fell in February, people were freaking out over what seemed like bad economic data, but it was almost all soft data that they were responding to.

Rob Armstrong (1:50)

For example?

Aiden Reiter (1:51)

So there were these ISM flash estimates. So the ISM survey is the survey of business owners, people in business, to get a sense of how they feel about their business and the economy writ large.

Rob Armstrong (2:01)

And they ask them questions like hiring. Do you expect to hire more people or less people in the months to come?

Aiden Reiter (2:08)

What's your costs like? Do you expect them to get more expensive, less expensive?

Rob Armstrong (2:11)

Orders, whatever, all of this stuff.

Aiden Reiter (2:13)

And they have these things called flash estimates, where they kind of release the preliminary numbers halfway through the month. And we got these preliminary numbers that were really, really bad in middle of February.

Rob Armstrong (2:22)

Yes.

Aiden Reiter (2:22)

They showed that sentiment...

Rob Armstrong (2:24)

New orders were weak, I think.

Aiden Reiter (2:26)

New orders were super weak. Services, which has been the thing that has chugged along for the past couple of years, slipped into contraction, which nobody anticipated. So the market just totally freaked out. And that came next to a Michigan Consumer Sentiment Survey, which is one of the more widely liked consumer sentiment surveys.

Rob Armstrong (2:41)

Long history it has. So you can look back at this survey series going back to like 50 years ago or something.

Aiden Reiter (2:47)

Yeah, it's an old series. Anyway, it had a really sharp drop at the same time. So people started freaking out about these two things. We should note though that the ISM flash estimate was pretty off. When the final numbers came out, it actually showed that services were doing just fine. Manufacturing was actually still in expansion at the time, surprisingly. But it did show there was some real fear among people in the business community about costs going up for them, the price is rising as a result because of tariffs. And there are a lot of concern about what new orders might be in the future, because they were already starting to see a lot of people front running tariffs now, and they were concerned...

Rob Armstrong (3:22)

Like buying equipment before the tariffs come in.

Aiden Reiter (3:24)

Exactly, and it shows concern about, well, what will our orders be after the tariffs go into effect?

Rob Armstrong (3:30)

But I think it's that Michigan survey, it sort of asks questions like, will the next six months be a good time to buy an appliance or something like that, a series of questions like that. And that had such a dramatic drop that people were like, oh my goodness, the great American consumer that supports 70% of our economy is basically closing their wallet now.

Aiden Reiter (3:53)

Yeah, but that was in February, and the market has done its little dip and dive, its correction. We've gotten new versions of both of those indices, right? So we've gotten updates about those indices, and we still haven't seen that much hard data, right? Yeah, to support them.