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Economic Data is Becoming Less Reliable and Leading Markets Astray
September 5, 2023
By their nature, financial markets are forward-looking. Entire narratives spin out of economic data points as investors try to determine the near- and long-term trajectories of companies, nations, and even the global economy.
The problem, however, is that unreliable data, subject to sometimes massive revisions, can drive unreliable narratives. Take the U.K., for example. Since the pandemic, much has been made of the U.K.’s relatively weak recovery, the weakest of any G7 economy. However, recent GDP revisions show the $3 trillion U.K. economy is 2% larger than previously thought, putting the nation ahead of Germany’s post-pandemic recovery and roughly in line with France.
We have seen a similar dynamic play out in the U.S. this year. Month after month, jobs numbers were met with headlines heralding the resiliency of the U.S. red-hot labor market, which defied economist predictions and the Federal Reserve’s attempts to cool the economy with higher rates. However, the monthly numbers have seen sizable downward revisions, to the tune of 250,000 jobs being created over the past six months than previously reported. The recent revisions have, in turn, spun their own narrative about an easing need for the Fed to raise rates again.
Timely data has become less reliable and it is likely we will continue to see potentially sizable revisions. The monthly jobs numbers are based on surveys from 651,000 businesses across the nation. The response rate for surveyed businesses tended to hold steady at around 60% in the years before the pandemic, but has since fallen to just 42%. The response rate for the closely watched JOLTS survey, which tracks how many vacant jobs there are and how many people voluntarily quit each month, has halved to just 32%.
