Economic Surveys Are a Danger to Markets

Surveys or opinions of economic activity, otherwise known as “soft data,” worked very well in predicting the economy for decades. But starting in the mid-1990s, and especially following the financial crisis, these surveys have become hostage to “bandwagon biases” due to the growing influence of internet and such things as politics.

We believe the soft data, and subsequent forecasts, are suffering from a circular reference due to groupthink, herd mentality and political preferences. This caveat is important when considering the eye-popping Wall Street forecasts since late 2017. The stock market’s recent malaise is likely an acknowledgement on the part of investors of the unattainable estimates that exist for earnings, wages and economic growth.