Morgan Stanley flags ‘record gap’ between hard and soft US economic data

The difference between quantifiable data and reports based on sentiment has never been so wide, prompting a sharp divergence in expectations for first-quarter US economic growth, according to an analysis by Morgan Stanley.

Following the election, numerous survey-based economic gauges have surged amid expectations that the Trump administration will take measures that are supportive of the economy and will lift growth.

One example is consumer sentiment, which shot up this month to its highest level since 2000. Another can be found in small business optimism, which has hovered around its highest readings in 43 years.

But hard data have told a more muted story. For instance, retail sales edged up by just 0.1 per cent in February from the month prior, the weakest pace since August. A closely-watched measure of capital spending also underwhelmed that month.

“Upside surprises appear to be completely driven by the soft data while hard data are simply coming in about as expected,” said Morgan economist Ellen Zentner.

The divergence has sparked wide differences in various forecasts for first-quarter economic growth. The Atlanta Federal Reserve’s model, which Ms Zentner said focuses on hard data, projects an annualised rate of just 1 per cent. However, the New York Fed’s model which “incorporates soft data into its tracking” forecasts 3 per cent growth.

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