Beware the economic data fog: Morning Brief

A plethora of unusual crosscurrents has made it incredibly difficult for professional forecasters to predict current levels of economic output with a high degree of confidence. Yahoo Finance’s Myles Udland weighs in.

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JULIE HYMAN: But first, let's talk about that economic data that we've gotten recently, which was the subject of today's Morning Brief. Sam Rowe, our editor, was in the driving seat this-- driver's seat this morning, writing that and talking about that data that we've got recently and how difficult it is in this environment to sort of make sense of the numbers. Incidentally, we got another number just now, the NAHB, the National Association of Home Builders Index coming out at 83, which is unchanged month over month.

As we know, the housing data has also been a little bit choppy on this sort of supply demand imbalance. But, you know, we talked to Charlie O'Shea of Moody's last week about the retail sales number. And he basically said this environment, it's really tricky to figure out what the consumer is doing.

I also thought that the quote from Credit Suisse economist James Sweeney was interesting. He called it a data fog with some incoming high frequency data atypically uninformative. So I guess, Myles, it's just really difficult to get a clear picture right now.

MYLES UDLAND: And in that same quote, Julie, which really is kind of the crux of the article here, Sweeney adds that unhinged narratives are circulating freely as observers cherry pick numbers to fit stories. We talk a lot on the program about the challenge or have talked about the challenge that individual stock analysts and even S&P strategists have faced in this environment.

The challenge for an individual company analyst is that you have a model for how much the company is going to grow over time, based on what the company does or does not tell you. You may tweak that model. There has been a lack of guidance from many corporates, thus leaving analysts guessing at how they should be thinking about company growth. As a result, we have seen estimates for this earnings season woefully inadequate, just massive beats across the board. I think the rate last time we checked, something around 87%, 88% of companies in the S&P 500 reporting better than expected earnings results.

The same thing happens in the economy. Economists have a broad macro dashboard for what they think growth is going to be, given all kinds of different drivers. Well, right now, all of those inputs are going haywire. And so you are sort of guessing at what any one month's or a quarter's data may look like when compared to the prior quarter, the prior year, and certainly, when compared to anything resembling a baseline forecast.

And I think we sort of saw that last week in this way. The inflation data comes in hotter than expected. So you get this round of, oh my God, here is inflation. The world is ending. The Fed's behind the curve. Everything is going wrong. See, like I've predicted since 2008. Then you get the retail sales report, which comes in worse than expected. Those still shows total dollar sales were the same as last month and also, basically, above trend from 2019. But that miss on data as interpreted is, oh, well, the economy is falling apart. The Fed has no room to maneuver. Rates are already at 0. They're already doing massive QE. See, I've been right also since 2008.

And so, I think that is sort of what Sweeney is suggesting. The data is so noisy, Sozzi, so chaotic, that everyone can make the argument that they are right about what is happening, even if their contentions are incoherent when compared from Wednesday to Friday, as was the case last week. And I think it's going to be a very challenging summer on that front because this is only the beginning, probably, of what's going to be several months of, I mean, let's just call it chaotic data, I think.

BRIAN SOZZI: Chaotic data and also probably just chaotic trends in corporate earnings estimates on the Street. I mean, realistically, the Street, many-- most sell side analysts are under a pricing or just don't have it right, either for the second quarter, because, to your point, the economy is really snapping back hard. And ultimately, maybe that is or that serves as another catalyst for stocks.