Although most Wall and Bay St (the Street) Economists (some happen to be friends of mine so I will be gentle) are called "Doctor", due to the fact they have a Phd, no one dies if they make an error or a bad call on some economic statistic.
Pretty much every day of the week, there are series (most are monthly series) that are released by the issuer (The Department of Labour for Employment reports, as an example) and the Economists all jam data into their models and come up with their best guess for each series of data in advance of it's release. Combining all these series of data, each Economist hopes to correctly predict the state of the economy, the consumer, corporate health and growth etc and be crowned by Institutional client voting (we get asked to vote on various Analysts and Strategists each year) as the most accurate of all. Job well-done.
So given that background, and on top of the blog I wrote yesterday (highrockcapital.ca/pauls-blog/interest-rates-are-going-up), I wanted to add one single chart to help describe what is happening in the US economy.
Citibank publishes an interesting Index called the Citi Economic Surprise Index. This Index simply measures the difference between the average estimate from Street economists on an economic series vs the actual numbers that came out on that same series. Citi then compiles all of the series of data to form this Index so that we can get a snapshot on how the actual economy is doing vs how the Street economists think, or thought, is was doing.
Without further explanation, here is the Citi Economic Surprise Index over just the past year:
What this tells us is that, over the past two months alone, the Economist's projections on the various series of economic data have been far too optimistic for reality. That is to say, the actual numbers in the economic series of data came in weaker than the Economists had estimated. Don't worry: no one died!
I should have titled this blog as Part II to yesterday's blog because, in that blog, I questioned whether the Fed is making a policy error by raising short term rates prematurely and creating a recession all by themselves. This Citi Economic Surprise Index dropping like a rock might be supportive of that view. US stocks at all-time highs, Fed hiking rates and the economy weakening - not a great combo, if you ask me.
Next time someone tells you the US economy is strong, growing and you have to be invested (with them, if they are after your money)...show them this chart.