Something looks wrong to me in terms of what most analysts forecast for the US economy

The markets, analysts and pundits look to be unified in their scepticism to the weakness of recent US data. This puzzles me as the majority of the 85 monthly data releases I follow have shown a pretty clear shift to the worse. Many of them have turned south over the latest month, most of them are below average for the last 12 months and for most of them, the trend lines for most of them are pointing south. If this was something I had spotted for a few, I would also be sceptical – but the way I read them – is that this is the case for most of them. 
 
So – where do I get it wrong or what is it that I see and the others don’t? I don’t know - but I find it rather strange that so many are so sceptical to so many data releases.
I am used to US analysts being more optimistic to the US scenario than what is reality for the US economy. But them aside – this time around most analysts - anywhere - look to have that opinion.

Either I don’t get it, don’t understand it, is wrong or is simply stubborn. Or - is it because everyone is long USD and therefore talks in favour of their positon?

I stick to my own guts and maintain my view that the state of the US economy is not as good as everyone says. I will admit defeat when the figures show that I am wrong.

In fact I am more confident writing this today than early last week. I have read and twice re-read Janet Yellen’s “The Outlook for the Economy” at Rhode Island on Friday. She is not more dovish than before but she uses the expression “I hope” in terms of headwinds disappearing. She lists several of them and while she is optimistic that they will faint, she underlines that this is not certain to happen soon. I buy her arguments for the positive impact reduced unemployment have but she also addresses other aspects about the labour market not moving forward as fast as one had hoped.

She sees certain deteriorating data caused by “a variety of transitory factors”.

She repeated that she is optimistic the first rate hike will happen “at some point” this year. There were no mentioning of June or September but she said that “to support taking this step, she would need to see continued improvement in labour market conditions” and she would have to be “reasonably confident inflation will move back to 2% over the medium term”.

To be “sceptical to recent US data” as many have expressed they are, is generally not a strong argument. But in terms of US data one can justify the saying as they are often revised substantially over time. US GDP figures are revised twice after the initial release and monthly Non-Farm Payrolls are often revised several times. To be sceptical to recent data releases one likely can argue from historical facts. I buy that argument. The revisions though can go both ways should one not clearly be able to pin point why the first release is wrong.

I am focused on the two groups of data Janet Yellen mentioned as critical to her on Friday:
“Continued improvement in labour market conditions”: She wants to see unemployment getting lower, more people getting into employment, short-term contracts being extended, part-time employees moving into full-time employment, more upward pressure on wages and salaries and possibly longer working weeks.

Up against those “wishes” reality has been that services sectors have hired most of those in new jobs. Manufacturing sectors are struggling and public sectors do not have the mandate to employ more people. Services sectors make a living from selling products and services – predominantly domestically – especially when the USD shows strength. They are depending on higher confidence among businesses and consumers to continue investing in employees. Confidence is one thing – they also need to see retail sales picking up.

The latest data in terms of both confidence and retail sales show nothing in my view to trigger an optimistic outlook. It has been a puzzle to many that they have not picked up more than they have given the strong improvement in number of new employees. Why we are more positive to such improvements in the future than what reality has shown over the last two years is my question?

“Reasonably confident inflation will move back to 2% over the medium term”: Let’s focus on those data that are not including energy products – as they are outside the influence of monetary policies. I see only one source of higher inflation. Domestic demand has to pick up and for that to happen, all those labour market conditions Janet Yellen has in mind, have to improve.

It is predominantly consumer sectors that have to buy more to trigger price increases. For them to do so, they have to earn more and have confidence in their abilities to pay future expenses. What is it today or in the future that should trigger such higher abilities and confidence when that has not been the case over the last year or so? Again – I am interested in those arguments that can be based on facts and not on hopes. Even expectations based on “history repeating itself” are not good enough.

To conclude: Many of the data the Fed, FOMC and markets are looking for to improve, should have done so months ago. They didn’t and while a time-lag factor should be taken into account, it is now long overdue. To me it looks like there is something else happening to US consumers, investors and businesses’ behaviour, which we have not seen before in the aftermath of previous crisis. I cannot point out what it is but the lack of improvements makes me question whether there is something more fundamentally behind this and that those predictions USD central bankers, investors and long USD position holders do are more based on hope than a real understanding of what is happening to the US economy.

Hope never was and should never be something one should forecast from. To have both your feet into a heavy long USD exposure is not the best position to conduct a forecast either. But I can see the element of hope influencing them. It is also the reason I am sceptical to most US forecasts these days.