Here's WhyHere's Why Some Economic Data Matters More Than Others
CPI, PCE, GDP, PMIs and JOLTS are all data points closely monitored by markets. They help us understand where the economy is, can give us hints on where it's going. But are all of these numbers equally important? Our global economy reporter Enda Curran joins Stephen Carroll to discuss how to separate the signal from the noise.Anchor, Bloomberg Radio
Bloomberg Audio Studios, podcasts, radio news. I'm Stephen Carol and this is Here's Why, where we take one news story and explain it in just a few minutes with our experts here at Bloomberg. It's the lifeblood of the finance world, the numbers that tell us about the state of the economy.
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There's a deluge of data available for major economies. But to misquote George Orwell, some data is more equal than others. Think about the many different ways that we measure inflation or the labor market, job openings, job creation, unemployment all tell you something different. And everything from economic growth to part just saying manager index surveys can get significantly revised between the first and last versions. So here's why some economic data matters more than others. We'll also tell you how to separate the signal from the noise. Joining me now is our Global economy reporter and a current and a great to have you with us. You're a man who knows your numbers. There's always this question of when we get data, whether it's telling us what was happening in the past, or what's happening right now, or giving us a hint as to what's going to potentially happen in the future. How do we attach different levels of importance to those timeframes.
Yeah, so some of the numbers we get are very backward looking, like, for example, when you hear people talking about GDP data on the news headlines, that's typically telling you where the economy was maybe a quarter ago. So in economic terms, that's kind of ancient history. Conditions can change quickly. Economists like to talk about what they call high frequency indicators, data points that are giving more timely read and what's happening and there. For example, you might look, I've got retail sales, retail spending on Main Street. That's a good indicator of consumer confidence. You might keep an eye also on what's going on with boring fancing at from banks. If banks are lending lots of money, that suggests that there's animal spirits and a willingness to invest out there. By Cuparts and maybe for would be homeowners buy a home, that's a good signal. If you're not lending money, then it suggests that perhaps things are more subdued them you might have expected. So some of the numbers, as you say, can be quite backward looking. It's better just to treat them as such. If you want to timely read, keep an eye on the more high frequency indicators.
Yeah, I mean animal spirits. Depending on what kind of animal you're thinking about, I suppose tells you different things about it. How do we explain the contradictions that we sometimes see in the numbers? Sometimes they don't make so much sense lining up one against another. If we think about an example of maybe inflation.
So over the past few years, if you want to talk about the advanced economy world, there's been the worst outbreak of inflation in decades that impacted everyone's living stand So interest rates go up and the cost of a mortgage and alone go through the roof as a result. Now we're in a phase whereby this inflation is well entrenched. So the pacer inflation has slowed dramatically in many economies. Coming back to the area where central banks like to be, that's a good news story. But if you walk into the shop having heard it on the news, headlinds, you're still paying much higher prices than you wore only a couple of years ago. So I think, say in the US, for example, basket of groceries maybe twenty odd percent higher than what they wore before the inflation crisis struck out. And that's where you get into the difference between the rate of inflation, which is what the economists measure every month, versus the actual price level that you're paying in the store. And I think there is a disconnected and confusion there people here. Inflation is coming off, that doesn't mean prices are coming down now. To be clear, for prices to come down, that would need deflation. And when an economy is in deflation, it typically suggests that it has some real problems going on. So it's a tricky you want it moment. It's a tough pill for households to swallow. We're at a point where inflation is slow, but for prices to start falling that would require something of a deeper shock to the economy.
Yeah, and indeed, most of the conversations that you'll have with people will be about how expensive things are consistently rather necessarily how much they've gone up by. Another quirk that we follow very closely here at Bloomberg is data revisions. So we get sometimes several iterations of the same number. Why do we see sometimes very big revisions in the data?
There can be bigger revisions. We recently had a larger vision to US employment data, for example. It's mostly because, as I say, a lot of these readings are snapshots in time. They are incomplete. It might be on a monthly basis, or maybe a quarterly basis, and as the months of the year ago goes by, and maybe after another year or so. The kind of agencies whoutalitates the statistic agencies and the government economic agencies pull all the numbers together when they have a more complete picture. And that's when you were able to say, oh, we overstated something there, or we underestimated something there, and they make changes to what we're previously now. And so, for example, the US employment data, and this is true of employment data anywhere, can be subject to material revisions. Which has had recent revisions to US jobs at it which suggest over eight hundred thousand less jobs than originally counted in the system. That speaks to a weekly labor market than was broadly expected at a jobs market still low kind to us. But it goes to show you that revisions can have a material impact.
Yeah, and look, it also speaks to the idea of getting the right data and data that is accurate, and revisions, I suppose, get us closer to what is a better picture of what's going on in something like the jobs market as well. There's an old joke about you put ten economists in a room and you get eleven opinions. How much can numbers be open to interpretation?
There is a degree of interpretation because it could suit someone's investment thesis. They will want to read numbers whatever way it is to back the argument they're making. Numbers can be interpreted to meet somebody's political buyas or political outlook. For example, so when we had the recent interest rate cut in the US, for example, you had one side of politics here saying it shows that the inflation story is under control and the Fed is at a point that work and bring down interest rates. That's good for costs of living. But of course you had the other side of the political avide here making the point that interest rates coming down because the economy is losing jobs and the jobs market is weakning, So everything can be interpreted in different ways, but ultimately, one of the good things about economics is the numbers and the data and the statistics do not lie.
So if you're looking for the most quality data or the best things to look out for when you're trying to assess numbers as they're being published, what are the sort of things that you think about when you're trying to parse what a certain number means for the economy.
You have to look for the numbers that really speak to what's happening in both people's lives and in companies' lives. So that would be figures around corporate investment, business investment. What's happening there with companies? Have they got the confidence of God and expand and hire new staff. Then obviously you have to keep an eye on what's happening with household credit. Are people taking out mortgages to buy a house or those who have a mortgage taking out a loan to renovate the house. That speaks to, of course confidence in terms of consumer confidence that those all around us. And then of course you have the very timely, monthly or even quarterly readings in terms of inflation, what is going on with the price that we're paying for goods and services. I mentioned the jobs out earlier. That's obviously a very critical one, and then all of that creates the jigsaw that is known as a GDPGIC. So that's backward looking, but it's a health check and it tells you worth economy has been And.
You've covered economies all over the world for Bloomberg. I wonder do you have a favorite piece of data? Is the one that still you get excited about trying to read into the details of well.
I used to get excited about. There was a phase when satellite data on China was a big thing, especially among hedge funds. It was popular that someone had the latest satellite footage of some industrial expansion or development somewhere, maybe some housing property site being developed, and they were claiming that they were getting an early read and what's happening in China's economy. But I think we've passed that phase now. During the pandemic, there was a huge rush on high frequency indicators, so people wanted to know what's happening with cinema tickets and what's happening with eating out and what's happening.
With Samwiches from Press.
I remember that one. All of this and usage of the subways and truth, we're back to where we started. We're looking at the official data that comes out of the agencies, and people are keeping an eye on as I mentioned earlier, spending data, keeping an eye lending data, jobs data, inflation data. I think the satellites and SANDWIDG indexes were all very interesting, but we've come back to what we know and trust.
Most, return to the classics and the current our Global Economy reporter. Thanks very much for joining us for more explanations like this from our team of twenty seven hundred journalists and analysts around the world. Search for Quick Take on the Bloomberg website or Bloomberg Business app. I'm Stephen Caroll. This is here's why. I'll be back next week with more. Thanks for listening, Z
