Normally, I don’t weigh in on individual economic stats. But when the consumer confidence number came out this morning, my jaw actually dropped and I muttered “wow” under my breath. (That doesn’t happen often either!) This is, in fact, such an unusual occurrence that I think we need to consider exactly what it means—which is probably not as good as it looks at first glance.

Last week was a slow one for economic data. But this week, we’ll have five major economic reports that will give us a detailed look at both consumers and manufacturing. Let’s take a closer look at the numbers.

Today's post is from Brian McCormick, manager of Commonwealth's Investment Management and Research team.

Today's post is from Peter Essele, manager of Commonwealth's Investment Management and Research team.

Today’s post comes from Anu Gaggar of Commonwealth’s Investment Research team. Take it away, Anu! —Brad

Last week’s data covered wide slices of the economy and was generally weak, while the week ahead will be a slow one. Let’s take a closer look at the numbers.

The political reaction to the tax reform bill that was recently passed has grown more favorable over time. Initially, people appeared skeptical. But now that lower withholding rates are actually showing up in paychecks, the sentiment is turning more positive. Economically, we are seeing the same thing. Consumer confidence is rising again, due at least in part to larger paychecks. That should also translate, over time, to faster growth as both people and businesses are increasingly willing and able to spend. The recent debt ceiling deal should also help economic growth, with hundreds of billions of dollars in additional spending. This kind of fiscal stimulus will certainly help growth accelerate this year.

The big economic news this week—now that the stock market has calmed down—is the apparent rise of inflation. In fact, inflation does appear to be on the rise, with both the Consumer Price Index (CPI) and the Producer Price Index (PPI) showing faster growth in the past 18 months, as you can see in the chart below. We will be using the CPI for the rest of the discussion, given the relatively short span of the PPI data, but note that the two series have been saying the same thing.

Now that the markets have seemingly calmed down a bit—although there is certainly no guarantee that will remain the case—it is a good time to look at the past couple of weeks and see what lessons can be drawn. Prior to that point, we had not had a significant pullback in two years. Let’s face it, we are out of practice at watching the markets drop. So, what do we know now that we didn’t know two weeks ago?

This is a “special edition” of the market risk update. With the recent 10-percent pullback in U.S. markets—something we have not seen in years—the idea of market risk is a concern for many. When we do this analysis, we have to be aware of this but also keep in mind that, over time, longer-term models are better predictors than short-term results (however worrying). As such, we will look at each of our indicators and try to determine how they relate to recent experience. These special sections will be in italics.