Tags: investors | data | economy | fed

Investors Shouldn't Get Addicted to Tracking Any Single Data Point

Investors Shouldn't Get Addicted to Tracking Any Single Data Point
(Dollar Photo Club)

By    |   Thursday, 01 February 2018 08:14 AM

The Federal Reserve is going to raise interest rates in March, and as things stand today, the Federal Open Market Committee (FOMC) will raise interest rates 3 times this year in total.

The final policy statement of Fed Chair Janet Yellen’s Fed did nothing to change that expectation.

The Fed’s press release starts on a strong note where we note for the first time two times the word “solid,” stating: “Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen, and that economic activity has been rising at a solid rate. Gains in employment, household spending, and business fixed investment have been solid, and the unemployment rate has stayed low.”

Interestingly, the communique reads on inflation: “Inflation on a 12-month basis is expected to move up this year and to stabilize around the Committee’s 2 percent objective over the medium term.”

The likelihood of further rate increases was also highlighted: “The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate.”

For the time being, the probability of 3 rate hikes in 2018 remains in place, but I wouldn’t be surprised that the number could go up at least by 1 more rate hike. If that would be the case, it will be interesting to see how, for example, the equity markets would react to that.

Anyway, one thing seems to be sure: “The times of money for nothing are coming to their end.”

This is all very logical. The U.S. economy is performing well. Data keeps being revised to show it’s performing better than had initially being reported. So long as the Fed is able to remain politically independent, and as long as economists hold sway, even if the new Fed Chair Mr. Powell, who will be sworn in as Fed Chair on Monday February 5, is regrettably not an economist, all should be well.

In China meanwhile, a Bloomberg investigation suggests that 2015 growth data was wrong, in fact it was false data, suggesting an error of a couple of percentage points with the data being reported higher than it actually was in reality.

I think that investors should take note of this because this situation could raise questions about China’s debt picture, and according to the economists, because if revenue and output growth is lower than people thought, there is less money to for local governments to make repayments.

Anyway, no one in the financial markets seems to care if Chinese data has been revised 3 years after the event.

Now, it’s also a fact that data revisions occur all the time.

For example, GDP growth during first quarter of 2015 in the United States was reported at one point as being in the grips of a deep desperate recession when the first estimated GDP growth rate came in at 0.2 percent.

Interestingly, in July 2017, the Bureau of Economic Analysis, the government agency that compiles gross domestic product data, said the economy grew 2.9 percent in 2015, which was the strongest growth since 2005.

Investors should better take care because what this sort of thing does do is underscore the dangers of getting worked up about details or addicted to tracking a single data point.

On could say without taking the risk of making an overstatement: “Data can’t be trusted. Only economists can be trusted.”

On the subject on data that can’t be trusted, final January purchasing managers index manufacturing business sentiment data for the Euro area informed that Eurozone manufacturing stayed close to record high in January.

The ISM manufacturing business sentiment data is due later in the day for the United States too.

In case you must pay attention to the data, and it is really not recommended, then the employment and pricing sub-components at least tend to have a positive correlation with the reality.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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Investors should better take care because what this sort of thing does do is underscore the dangers of getting worked up about details or addicted to tracking a single data point.
investors, data, economy, fed
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2018-14-01
Thursday, 01 February 2018 08:14 AM
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