SINGAPORE (April 27): Even with the improvement of US household and business confidence, as indicated by the rebound in consumption-related soft data since the US presidential elections, ABN AMRO Group Economics is mindful that hard data has yet to catch up to reflect this optimism.

In a financial markets research report issued on Wednesday, senior economist Maritza Cabezas highlights that a widening gap between soft data (surveys) and hard data, such as retail spending figures, that is characteristic of Donald Trump’s first 100 days in office.

“Historical data suggests that consumer surveys have a limited correlation with hard data, such as retail sales, a proxy for consumption. In general, retail sales growth is quite volatile even when consumer confidence surveys are improving,” explains Cabezas.  

“However, manufacturing and business surveys generally do track hard data well, though they tend to be coincident rather than leading. This time has been no different as hard data, such as manufacturing-related indicators and the growth of capital goods orders have been picking up. Weakness in consumer spending rather than in manufacturing and exports have been a big driver of the weak Q1,” she adds.

Cabezas observes that the US economy is heading for a weak first quarter based on current economic data.

However, this not unusual given a pattern of recurrent weakness in the data that feeds into first-quarter GDP growth – a global phenomenon that appears to be partly attributable to methodological distortions in the seasonal adjustment process, she shares.  

“Details on first-quarter growth suggest that this pattern of weaker growth can be found in categories such as construction, federal and local government expenditures, defence spending and exports. If this residual seasonality were absent, GDP growth would be much higher,” says the economist.

In ABN AMRO’s view, consumers are still “better off than they were in years”, with household net worth amounting to nearly 6.5 times disposable income and an unemployment which has fallen since the beginning of 2014.

A stronger dollar and dissipating lower oil prices, too, point to a gradual recovery in business investment as well as stronger export growth, adds Cabezas.

Other factors that could lead to an acceleration of hard data include looser financial conditions, a rebound of the global economy, as well as the possibility of fiscal stimulus.

Noting loosening financial conditions as a result of the weaker US dollar and strong equity markets, Cabezas adds that the rebound in the global economy is expected to support US export growth going forward.

“There are already signs from Asia that foreign demand is surging. With respect to Trump’s policies, fiscal and infrastructure plans are important elements for the US economic outlook. Although the direct effect of these measures will take time to materialise, the impact on future growth could trigger stronger consumer spending. This all makes it unlikely that economic activity will slow down in the near term.”