"What Do They Know That We Don't (The Week Ahead)" - from
"We're usually skeptical about sentiment surveys. Markets place
a lot of emphasis on polls of purchasing managers; we prefer to
look at actual data on orders, production and shipments. Consumer
confidence indexes don't tell us nearly as much as what retail,
auto or housing sales show us when households vote with real
dollars, rather than with a verbal "yes" to a pollster.
"But beggars can't be choosers. In a U.S. economy starved for
actual data while the government shutdown drags on, we'll be forced
to make do with qualitative, private surveys in lieu of hard
"If those surveys are on the mark, they raise an interesting
question: what do they know that we don't? Because some of the most
widely watched sentiment indicators have been doing notably better
than the hard data, and what's likely to be sub-2% Q3 growth, would
"The homebuilders' index, for example, has soared to levels that
would have historically had starts at a nearly 1.5 million pace,
some 50% better than the best month in this recovery. Perhaps
builders are seeing an upturn in showroom traffic that has yet to
be seen on the ground.
"Similarly, the ISM factory index has run well ahead of the
relatively tepid growth we've seen in core measures for orders.
Maybe manufacturers know of big deals that have yet to hit the
assembly line or the order books?
"Even households are, at least in some measures, responding more
favourably to those taking their pulse. The Conference Board's
metric for consumer confidence has been at notably higher levels in
the past four months than earlier in the recovery. Again, that has
yet to show up where it would really count, with no evidence that
consumer spending is on a faster track in Q3.
"Since these series eventually come into line with reality, or
they would long ago have been abandoned, something has to give. Our
bullish call for U.S. growth next year has us crossing our fingers
that this time, it's the data that will catch up to the
"That won't help Q4, particularly with a new dent from the
government shutdown. But it could be the ingredient of a happy new
year for 2014, not only for Americans, but for Canadians that live
off that key export market."