Hard Data Facts Beat Soft Data Fears

Pessimism is reaching new heights after Monday’s market meltdown.

But if you focus on the data, and you’re in it to win it, you’ll actually find plenty of reasons to be bullish for the year ahead:

Video Transcript:

Welcome to Moneyball Economics, I’m Andrew Zatlin, and there’s a lot of pessimism out there in the markets.

There’s a lot of fear and worst of all … there’s a lot of uncertainty.

Markets don’t like uncertainty, yet that’s the one thing Donald Trump brings to the table. So in their race to create certainty, markets are getting risk-off. They’re starting to look around, they’re looking at the data and wondering if a recession might be around the corner — a self-inflicted recession because of Donald Trump, but a recession nevertheless, and they have good reasons to be concerned.

I mean, at the end of February, there wasn’t a lot of positive news.

Take a look at what was going on … we had earning season wrapping up. Now, earning season was good, just it wasn’t great, and when companies were talking about the future, they were sharing a lot more concerns, a lot more concerns about the tariff, headwinds and other Trump policies.

At the end of the day, companies were saying, we don’t know how to invest in an environment like this, and when companies don’t know how to invest, that’s code for, “we’re kind of pulling back.

And so markets were very defensive. They were concerned about what they were hearing and what they were seeing when it came to the actual hard data. One thing to hear about companies maybe sort of considering pulling back, it’s another to see the economic data reinforcing that maybe they were already starting to pull back and when companies start to retreat, where it’s going to show up is jobs, and that’s what we started to see in the labor markets.

We had jobless claims shoot up from about 210,000 early in the month of February to suddenly 242,000. We had payrolls for January come out weak. November, December, they were super strong, 250,000-300 something thousand.

Then we get to December, sorry, January, barely 140,000-150,000 … just terrible! They collapsed.

Well, let’s face it, if we’re heading into a recession, jobless claims, jumping, payroll’s falling, those are typically associated with the early stages of a recession, and then the kiss of death came from retail. So retail sales contracted 0.9%, which annualized translates to a 10% pullback in consumer spending.

Hey, if you’re looking at the data, if you’re hearing what companies are saying, you have every right to be pessimistic. It doesn’t matter why.

Everything seems to be uniformly saying, “we are starting to see the economy retrenched.” That’s exactly why Jerome Powell came out last week and said, “Hey, hey, hey guys. Whoa, this isn’t the time to be negative.” Nancy’s, “everything’s fine in the economy,” but the problem is when we come to sentiment, it’s going to take a lot more than jawboning to change it because right now we’re in March … and earning season’s over.

There’s not a lot of hard data and sentiment. Well, sentiment takes the driver’s seat for the next month.

I believe that the economic data going forward is actually going to be reassuring to the markets, and I think it’s going to trigger a relief rally.

Why do I think the economic data is going to get better? Let me explain.

First off, start with the jobless claims story. That was all weather, that was storms. You’re going to see jobless claims start to stabilize and then retreat over the next few weeks. That’s in the private sector. We’re going to have some jobless claims pop up from the federal government, but again, private sector matters more than what’s going on in the federal government for the moment.

I also look at retail sales. They’re going to come out. I think retail sales are going to show a rebound, a bounce back.

That’s reassuring. Then we want to talk payrolls. Payrolls came out last week, and you know what? They were a lot better than people expected. Bloomberg, for example, thought they were going to be terrible. 33,000 was their forecast. I mean, imagine everybody’s looking for some kind of sense, and one of the main gurus is saying it’s going to be an absolute shit show. Some people thought it was going to be negative.

Instead, it came out pretty much the way consensus thought it was going to land, and so that’s kind of reassuring.

Now, the number itself at the headline level was not that great. It was basically a number you’d see with an economy that’s kind of soft, not strong, not weak, but soft. Not exactly reassuring, but here’s where I saw the positives. When you look at that number, remember, it’s built off of two components…

One, the private sector jobs, the second public sector. Well, we know the public sector’s not doing right. Well, right now because Trump is on this warpath cutting jobs. Let’s ignore that for a second. If you focus solely on what was going on with the private sector, then you saw February numbers being a lot better than January, it almost doubled what January was showing.

In fact, most of last month’s jobs came out of the private sector. That’s a good thing. That’s an inflection up. I think that’s going to carry forward into next month. So when we get jobs released a month from now, I think they’re actually going to tilt up closer to the 190,000 level. Maybe 170,000, it doesn’t matter. It’s a far cry from being zero. So the markets are going to get a sense, I think of the economy holding steady right now.

That’s a relief.

Then you come out with inflation numbers that are benign, that are maybe flat to down, and you’ve got the components that are going to say, the market’s going to think they were too negative. As a result, you’re going to have a flip flop.

Why do I think inflation’s going to be another good sign? Well, quite frankly, oil prices are down. Oil is a big component of CP. I think that’s going to drive things into a happier place. All the economic data, in other words, should be shaping up to reassure the markets that things aren’t stacked. Deflationary meaning soft economy, but high inflation.

They’re not exactly recessionary either, and so the markets have positioned for the worst case. I think instead, they’re going to come limping back. Let’s see what happens.

In the meantime, we are in it to win it. This year’s going to be a tough volatile year, but it is going to end up positive. Zatlin out.