Hard data beats sentiment in Q1

For the past 3 months there’s been a raging battle between the Atlanta Fed and the New York Fed.  The Atlanta Fed relies mostly on hard data when predicting GDP growth, whereas the New York Fed puts relatively more weight on consumer sentiment.  Republicans became much more optimistic after Trump was elected, so the sentiment indicators pointed to much stronger growth than the hard data indicators.  The following graph shows the huge divergence that developed in recent weeks:

Screen Shot 2017-04-28 at 10.14.15 AMThe actual growth was only 0.7%, which was much closer to the bearish Atlanta Fed’s 0.2%, than the New York’s Fed’s bullish 2.8%.  This reminds me a bit of the post-Brexit vote growth in the UK.

I don’t like either hard data or sentiment; I like market forecasts.  Unfortunately we lack a NGDP futures market (I’m working on setting one up again, and will have an announcement soon), but we do have some market indicators.  The preceding graph and the following quotation were from an April 12 article:

Tying in with the earlier point, the rally in the ten-year bond is consistent with the Atlanta Fed’s forecast for low growth in Q1.

So the bond market seemed to sense that growth was weakening.

Is it too early to attribute any of this to Trump?  I’d say so.  But the Trumpistas all crowed in early February when the strong January jobs report came in.  This was attributed to the magic powers of Trump, despite the fact that he had not even taken office when the January survey was conducted.  I don’t know how they’ll reconcile this GDP report with their dreamy predictions of 4% growth as far as the eye can see, but I’m sure they’ll think of something.

There’s likely to be some bounce back in Q2 (poorly measured seasonality depressed Q1), but I’m sticking with my view that America’s new trend RGDP growth rate is 1.2%, or 1.5% if Trump succeeds in getting his supply-side reforms passed.

PS.  Core PCE is up 2% over the past year, so the Fed is hitting both its price and employment targets.  For the moment, they are fulfilling their dual mandate. That’s a problem for Trump, who needs some Arthur Burns-style recklessness to paper over his personal incompetence when it comes to developing supply-side policy reforms.

Update:  I got the core PCE inflation data from the FT.  Ant1900 points out the true figure is 1.7%, still below target.

PPS.  I have a new post at Econlog explaining job shortages.



19 Responses to “Hard data beats sentiment in Q1”

  1. Gravatar of John Hall John Hall
    28. April 2017 at 07:51

    This wasn’t all that surprising. The market largely shrugged it off. The GDP forecasts had all been revised down significantly with weaker vehicle sales data and inventories depressed. Also, the BEA has not been good at taking into account Q1 seasonality in recent years.

  2. Gravatar of ssumner ssumner
    28. April 2017 at 08:08

    John, As I said.

  3. Gravatar of Benny Lava Benny Lava
    28. April 2017 at 12:41

    The trumpeters will blame Obama as is their wont. The mantra of the partisan is I’ll take all the credit you’ll get all the blame.

    In the meantime what is with all the sabre rattling with North Korea?

  4. Gravatar of Benjamin Cole Benjamin Cole
    28. April 2017 at 16:29

    I am not allowed ro comment at Econlog.

    There are still about 1.5 persons seeking work for every job opening in the US.


    In Japan, there are more job openings than people seeking work,

    In Japan the March core CPI is up 0.2% YOY.

    Japan is also eliminating its national debt through QE.

    The Fed has a policy of keeping unemployed one out of every 20 Americans who want to work. That’s 5% unemployment.

    As the relationship between unemployment and inflation died a long time ago, why the retrograde policy?

    Is this policy convenient for who?

    Why a de facto open borders policy for immigrant 3rd World labor for America?

    It is sad to see the orthodox macroeconomics profession become so ossified or complacent.

    And why do higher wages attract young people into the oil business (drilling holes in the Texas sun or the North Dakota snow) but not into the construction business?

    Does one imagine $98,000 construction jobs (if a true anecdote, but sounds Reaganesque to me) will go begging for long?

  5. Gravatar of Benjamin Cole Benjamin Cole
    28. April 2017 at 16:53

    I understand some people have disagreements with the methodology used in the this following series.


    It shows labor share of domestic income falling from a peak of 52% or so in 1970 to about 43% now.

    Is the above chart what US labor policy is really about?

    And I will say it again: If we want to voting population to embrace free enterprise, then shooting for “labor shortages” is the best possible policy.

    Although, tricking the voters with a bogus Trump presidency who promises tighter labor markets is a good stunt….

  6. Gravatar of ssumner ssumner
    28. April 2017 at 17:27

    Ben, You said:

    “In Japan, there are more job openings than people seeking work,

    In Japan the March core CPI is up 0.2% YOY.”

    So are you backing off from your claim that high inflation is needed to lower the unemployment rate? How would you feel about 0.2% inflation in the US?

  7. Gravatar of ant1900 ant1900
    28. April 2017 at 17:38

    Core PCE is up 2% since last quarter, but not year-over-year.

    Year over year it was up 1.7% (see page 7 of the BEA release).

    Fed still undershooting on inflation.

  8. Gravatar of Benjamin Cole Benjamin Cole
    28. April 2017 at 19:04

    From Indeed.com:


    Construction Worker Salaries in Texas

    Salary estimated from 1,914 employees, users, and past and present job advertisements on Indeed in the past 12 months. Last updated: April 27, 2017

    Average in Texas
    $12.69 per hour
    ▼9% Below national average
    Most Reported
    Salary Distribution
    Salaries are also available in daily, weekly, monthly and yearly

    Scott: I can can find no hard data on the $98,000 construction worker in Texas. Was a skilled electrician working a lot of overtime?

    According to Indeed.com, the average construction worker in Texas makes $12.69 per hour, less than the national average.

  9. Gravatar of Benjamin Cole Benjamin Cole
    28. April 2017 at 19:23

    “So are you backing off from your claim that high inflation is needed to lower the unemployment rate? How would you feel about 0.2% inflation in the US?”—Scott Sumner.

    Actually, I would prefer NGDPLT, which may be the one topic we agree upon! Well, and Tater Tots! (Actually, I think we also agree on lower taxes on productive behavior, pollution taxes, less regulations etc. Property zoning is still not a polite topic. Wow, check out house prices in Newton! Consut)

    If we are to target inflation, an IT band of 2% to 4% inflation (core PCE) would probably work, at least better than the de facto 1.7% ceiling in place now.

    BTW I have to concede that Stanley Fischer recently gave a highly intelligent interview, in which he clearly stated that 2% was an average, and belong above or below was equally “bad.”

    While I contend that 2% is too low, at least there is one Fedster willing to contemplate, say, 2.4% inflation (horrors!) for a while.

    Whether Fischer would actually help generate a policy that would result in 2.4% inflation is another matter. As you well know, Bernanke-itis seems too attack every Fed official.

  10. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    28. April 2017 at 19:31

    There aren’t ‘construction jobs’. There are jobs in construction for people with a variety of skills–electrician, carpenter, plumber, metal workers, drywall, framers…. Which pay differently.

    There are also construction laborer jobs for the unskilled, which pay about $13-15/hr in Seattle right now. And Seattle is in a construction boom.

    Speaking as someone who used to have a construction company, it’s always been difficult to find competent and reliable people to do concrete work.

  11. Gravatar of Benjamin Cole Benjamin Cole
    28. April 2017 at 19:34

    A funny thing about the $98,000 construction worker in Collin County Texas anecdote in The Dallas Morning News.


    I went to the actual article, and there is no link to that figure, though there are links to other figures in thee article. The $98,000 figure appears out of nowhere.

    Here are a couple of job ads from Collin County TX for construction workers.

    Concrete Worker
    Trillium-Dallas, TX-Est. salary: $18 – $20 an hour
    Workers will be building foundations for power lines across the United States. Trillium Construction is now hiring Concrete Laborers for work around the United…
    2 days agoRelated
    Skilled Laborer (Plano TX)
    American Technologies Inc-Plano, TX-Est. salary: $24,000 – $33,000 a year
    Is a national leader in construction restoration. American Technologies, Inc….

    Hmmm. $12 to $16.50 an hour….up to $20 an hour to build foundations….

    My guess is the $98,000 construction worker story is a fluke, a skilled high-rise electrical engineer who who a lot of overtime etc….or just fake news.

  12. Gravatar of Benjamin Cole Benjamin Cole
    28. April 2017 at 19:34

    Simply hired cite:


  13. Gravatar of Benjamin Cole Benjamin Cole
    28. April 2017 at 19:46

    E-mail I sent to Dallas Morning News:


    “In Collin County, these construction workers earned almost $98,000 in the past year. That’s $44,000 more than the average for all private employees in the country.”

    Is there a cite for the $98,000 number? Source is unclear, and advertised construction wages in Collin County are about one-quarter to one-third of the $98,000 figure cited.


    Benjamin Cole

  14. Gravatar of Benjamin Cole Benjamin Cole
    28. April 2017 at 19:52


    The BLS just released their employment cost index for March. See link above.

    The index for construction wages in March 2017 was 126.9.

    For March 2016, the index was 125.6.

    That is a 1.0% percent increase.

    That is less than the rate of inflation!!!

  15. Gravatar of Benjamin Cole Benjamin Cole
    29. April 2017 at 05:59


    Big-name economist says Fed should have negative interest rates…..

  16. Gravatar of Lars Christensen Lars Christensen
    29. April 2017 at 09:41


    It is clear that what I have called the ‘Trump boom’ (not the stock market ‘Trump rally’) is running out of the steam.

    I have argued that this is basically the ‘Sumner Critique’ setting in. I have discussed that in two recent blog posts:



    And given the fact that the ‘Trump boom’ has hit the wall it is very hard to make the argument that the Fed should hike anymore in 2017. We make that argument in new the latest edition of our Global Monetary Conditions Monitor.


    And yes, you are very right – look at market data. The signal is pretty clear – inflationary pressures are clearly easing. The Fed has already overdone it. Just take a look at the link between for example Citi’s so-calld Surprise Index and market inflation expectations.

  17. Gravatar of flow5 flow5
    29. April 2017 at 10:52

    Truth passes the test of time. The source of time (savings) deposits is other bank deposits, directly or indirectly via the currency route (never more than a short-term situation), or thru the DFI’s undivided profits accounts. Time deposits for the DFIs, are not a source of loan-funds, rather they are the indirect consequence of prior bank credit creation, a shift in the “mix” of deposit liabilities. An increase in time/savings accounts depletes transactions deposits by the same amount.

    And all savings originate within the commercial banking system. And saver-holders never transfer their savings outside of the commercial banking system, unless they hoard currency or convert to other national currencies.

    Since time deposits originate within the banking system, there cannot be an “inflow” of time deposits and the growth of time deposits cannot per se increase the size of the banking system.

    As long as monetary savings are held within the payment’s system, the rate of turnover of these deposits is zero. All bank held savings are un-used and un-spent. They are lost to both consumption and investment, indeed to any type of payment or expenditure. I.e., DFIs always pay for their earning assets with new money. Unfortunately the impact on the economy is not zero, it is decidedly negative. This mis-conception is the direct and sole cause of both stagflation and secular strangulation.

    Basel’s “ring-fencing” of the E-$ market was a step in the right direction (contracting the E-$ market, curbing the carry trade and currency manipulation). The DFIs should never have been permitted to attempt to buy their liquidity through an open market instrument.

    This oligarchic practice, monopolistic pricing, TBTF/G-SIBs, leads to the mis-allocation and mal-distribution of available credit (asymmetry, credit rationing, adverse selection, or a redlining effect). It feeds any asset frenzy.

    So, as I said: “Thus in a twinkling R-gDp falls…“So, now, each and every time the Fed raises the remuneration rate, it will induce non-bank dis-intermediation and money velocity will decelerate.” Aug 1, 2016. 08:38 PMLink

    This was the reason for the deceleration in R-gDp during the 1st qtr. 2017.

  18. Gravatar of ssumner ssumner
    30. April 2017 at 05:25

    ant1900, Thanks, I added an update.

    Ben, Thanks, I added an update to that post. Also check out the comment section.

    Lars, I agree that the Trump boom is dead.

  19. Gravatar of flow5 flow5
    30. April 2017 at 06:25

    “Trump boom is dead”

    NO, When the Fed raises the remuneration rate (2 in succession:

    As I said a year ago (after examining the 1st rate hike):

    “The economy is behaving exactly as it is programed to act. Raise the remuneration rate and in a twinkling the economy subsequently suffers. The Fed’s 300 Ph.Ds. in economics don’t know the differences between money and liquid assets.” Apr 28, 2016. 11:25 AM

    The economy is likely to surprisingly: rebound – immediately after the contractionary impact of raising the remuneration rate altogether expires. The frequency of economic oscillations has increased. Stop-go monetary mis-management is now the norm.

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