US: Sentiment readings have boosting perceptions about the economy - Westpac

Richard Franulovich, Research Analyst at Westpac, suggests that Westpac’s data surprise indices confirm the outsized role that sentiment readings have played in boosting perceptions of the US economy.

Key Quotes

“Much has been said about the large wedge that has opened between the hard and soft US data since Trump’s election win, whereby his pro-growth agenda has given confidence a substantial lift while real activity shows no real signs of picking up, yet. Matching that the Atlanta Fed Nowcast for Q1 has been backtracking, their Q1 estimate falling to 1.8% vs 2.5% a week ago and 3% a month ago.”

“Our US data pulse excluding the sentiment surveys has if anything been firming since Trump’s win. Our data pulse ignores expectations and focuses on the outright momentum in the data (i.e. are actual data outturns stronger or weaker than the prior releases). While the hard data have not necessarily beaten expectations the underlying trend is nevertheless toward stronger hard data prints (payrolls, retail sales, new and existing home sales and initial jobless claims are some notable examples).”

“Business investment is one “real” sector that may well be showing early signs of a post-Trump bounce.”

“Lastly, almost all the downward revision to the Atlanta Fed Q1 Nowcast is a function of personal spending on services, downward revisions here accounting for 0.5ppts of the 0.7ppts negative revision to GDP last week. But, within personal services spending the major culprit is electricity and gas utilities, which would be a function of the mild winter weather and thus hardly a genuine growth concern. The Atlanta Fed Nowcast for personal goods spending has if anything been revised slightly higher in recent weeks as has their estimate for residential and business sentiment. A deeper dive into the Atlanta Fed Q1 Nowcast points to a less troubling picture. There is a non-negligible risk that President Trump’s pro-growth agenda is swamped by other issues and legislative gridlock, hurting growth prospects, but that is a story for Q3.”