The recent complaint among investors who remain bearish on the U.S. economy is that "soft" economic data far outstrips the "hard" data. The narrative goes that soft data like consumer and business confidence – which hit 16-year and 37-year highs recently – will come back down to reality once all the exuberance related to the election of President Trump wears off.
In other words, the post-Election Day 9% to 14% run-up in broader U.S. stock market indices is not to be trusted. We now have proof, the bears say, that President Trump can't possibly live up to all the hype. Hence last week's selloff that bled into the last few days of trading.
On the campaign trail, Trump promised to repeal Obamacare at least 68 times. Stocks fell in the aftermath of the GOP's failure to even vote on their Obamacare alternative.
Hang on a sec...
The Trump Trade narrative is a red herring. No matter Trump's policy changes, the U.S. economy is accelerating once again. On the soft data versus hard data debate, historically, an acceleration in soft economic data is a leading indicator of hard economic data. As Hedgeye Senior Macro analyst Darius Dale wrote recently:
"Only once in the past 30 years has soft data materially diverged from the hard data domestically (during the 1997-98 Asian Financial Crisis) – and in the opposite direction."
The chart below shows the only divergence in the past 30 years between the ISM Manufacturing PMI reading and U.S. GDP (year-over-year).
Soft Data ↑ = Hard Data ↑: Durable Goods
Still unconvinced? On Friday, the U.S. Census Bureau released data on durable goods for February. This release is about as "hard" data as you can get, outside of the U.S. GDP report or maybe Retail Sales (which is also accelerating by the way).
The report gives insight into the buying habits of consumer goods like appliances, home and office furnishings, consumer electronics, toys and motor vehicles. Here's the breakdown across key metrics:
- Durable Goods: +5% year-over-year (a level not seen since August 2014)
- Durables Ex-Defense & Aircraft: +3.4% year-over-year
- Capital Goods: +2.7% year-over-year
As you can see in the Chart of the Day below, from today's Early Look, the Durable Goods data bottomed out at the end of the second quarter of 2016 (-6.6% year-over-year) and has been trending up ever since.
Interestingly, but not surprisingly, this mirrors the broader trend in the U.S. economy. U.S. GDP fell for five straight quarters from Q1 of 2015 when US GDP was +3.3% year-over-year to Q2 of 2016 at +1.3% year-over-year. In the fourth quarter, GDP came in at +1.9%.
You get where we're going with this...
Bottom Line
All this talk of the divergence between soft and hard data just doesn't hold up. Whether you're looking at Retail Sales, Durable goods or U.S. GDP, U.S. economic data is accelerating. Stay bullish.
