Economic expectations — Week of October 14, 2024

Are analysts that wrong?

Essential Economics

— Mark Frears

Anticipation

Take a look at your calendar for the week. What things are you looking forward to and what are you dreading? We all have them, and often they surprise us as when the actual event happens. Maybe that appointment that was on your mind, in a negative way, went pretty well, and the feeling of having it done is great. Maybe the long-awaited vacation got cancelled due to a hurricane. Unexpected outcomes, or surprises, go both ways.

Happiness is the gap between expectations and reality, or reality minus expectations. When reality is better than expectations, you are excited and happy. When reality is below expectations, you are disappointed, or unhappy.

Markets

Do you think the markets like surprises? Again, positive ones should be a good thing. Yes, there is an indicator for that: the Citigroup U.S. Economic Surprise Index. As you can see below, it has been running below zero until recently.

Source: Bloomberg

To clarify, this is not measuring economic strength. This shows us how actual data compares to the analyst’s expectations/predictions for the releases. For example, if the analyst’s prediction for nonfarm payroll is an addition of 300,000 workers, and the actual is 200,000, this is a significant “surprise” or miss on the actual versus forecast. This would be a negative impact on the Index, as it is below expectations

This index turned positive on October 1, ending the longest negative streak since the 143 days ending in September 2019.

What this means is that during this long negative streak, the actual releases were below expectations. So, either the analysts are very poor at their job, or economic statistics were disappointing. This can twist in a multitude of ways. If the GDP number is below expectations, that is bad. If the CPI is below expectations, that is good. Therefore, you must dig deeper.

One thing this index can show us is momentum of the economy. If it is in a negative trend, like recently, it can show that the actuals are disappointing versus the forecast and foretell a slowing economy. As we are coming out of negative territory, it could be yet another indicator that we are not going into recession. One more thing for you to monitor as you wade through the myriads of economic news.

Economic releases

Last week was about inflation. CPI, PPI and Consumer Sentiment metrics all came in above expectations. It is one month, but inflation is still hanging around.

This week’s calendar’s highlight is retail sales on Thursday, as well as housing and manufacturing information. See below for more details.

	Upcoming Economic Releases:	Period	Expected	Previous
14-Oct	NY Fed 1-yr inflation expectations	Sep	N/A	3.00%

15-Oct	Empire Manufacturing	Oct	3.6	11.5
15-Oct	Monthly Budget Statement	Oct	$35.0B	-$380.1B

16-Oct	NY Fed Services Business Activity	Oct	N/A	0.5
16-Oct	Import Price Index MoM	Sep	-0.3%	-0.3%
16-Oct	Export Price Index MoM	Sep	-0.6%	-0.7%

17-Oct	Retail Sales MoM	Sep	0.3%	0.1%
17-Oct	Retail Sales ex Autos MoM	Sep	0.2%	0.1%
17-Oct	Philadelphia Fed Business Outlook	Oct	3.5	1.7
17-Oct	Initial Jobless Claims	12-Oct	253,000	258,000
17-Oct	Continuing Claims	5-Oct	1,888,000	1,861,000
17-Oct	Industrial Production MoM	Sep	-0.1%	0.8%
17-Oct	Capacity Utilization	Sep	77.8%	78.0%
17-Oct	Business Inventories	Aug	0.3%	0.4%
17-Oct	NAHB Housing Market Index	Oct	42	41

18-Oct	Housing Starts	Sep	1,350,000	1,356,000
18-Oct	Housing Starts MoM	Sep	-0.4%	9.6%
18-Oct	Building Permits	Sep	1,450,000	1,475,000
18-Oct	Building Permits MoM	Sep	-1.0%	4.9%

Mark Frears is a Senior Investment Advisor, Managing Director, at Texas Capital Bank Private Wealth Advisors. He holds a Bachelor of Science from The University of Washington, and an MBA from University of Texas – Dallas.

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