I’m going to try something new today. Rather than pick a specific topic to talk about, I’d like to look at the past week and discuss what everything means going forward. When I give talks, the usual title is “Beyond the Numbers,” where I present not only the data but what it means. Indeed, there are a lot of numbers out there every week, and not all of them mean anything. Of those that do, quite a few mean something different than what most people think. So, let’s take a look at what happened in the past week and what it means in the medium to longer term.
For both the economic news and the market results, the takeaway was surprisingly good, despite the headlines. There are two economic data points that warrant a deeper look.
Consumer Confidence: Better Than the Headlines
First up is the consumer confidence number. The headline number was down by a pretty big amount, which is consistent with the headlines. But this drop is kind of strange when you consider strong job growth and the fact that personal spending and retail sales both grew strongly in the last month. That gap—between the survey and the jobs and spending—suggests something else is going on.
Indeed, something is. When you look at the details of the survey, we find that how people feel about their lives today actually got better and remains at very high levels. But their expectations (i.e., how people expect to feel in six months) have dropped sharply. This tells us two things. First, at least for right now, we can expect the positive news to continue, as people still feel good. Second, future risks may have increased.
I say “may have” because we have seen declines like these in expectations before, only to have them bounce back as current conditions remain strong. We need to watch job growth in particular, as that is a major reason confidence might reverse. But for the moment, this is a more positive indicator than it looks at the headline level and suggests continued growth for the next couple of months.
Durable Goods Purchases: A Guide to Business Investment
Supporting this interpretation is the second data point from this week: durable goods purchases, which are a good guide to business investment. Again, the headline number was bad. But if you take out aircraft orders (think Boeing), which bounce all over the place, the adjusted number is again quite positive, suggesting business as a whole is still willing to grow its investments. Business typically makes decisions on a longer-term basis than consumers. So, to see this bounce after a couple of months of declines suggests that expectations may have bottomed and even started to improve.
Market Reaction May Be Changing
Unfortunately, of course, the bad effects of this better-than-expected economic news include likely continued inflation and higher interest rates. Indeed, we saw rates move higher again this week, with the 2-year U.S. Treasury note moving close to 5 percent and the 10-year moving above 4 percent. That’s bad news on the whole. But the interesting part was what happened in the stock market yesterday when markets rallied to close higher even as rates rose. That is unusual. While one day doesn’t determine anything, to see markets rally as rates close in on new highs suggests that, at the very least, a lot of bad news has already been priced in. While inflation and rates still have some room to run, the market reaction may be changing, which would be good news.
Look for the Silver Linings
On the whole, it’s been a much better week than the headlines suggest. There is still a lot to worry about—as there always is—but there are some silver linings out there when you look a bit deeper.
Let me know what you think of this kind of post as a standard for Fridays. Is it helpful? How can it be better? And thanks as always for reading. Have a great weekend, and we will be back on Monday with the economic data updates in detail.