Polls of both consumers and businesses have been negative for a while now.
Now the so-called “hard data,” like the April retail sales report, is also starting to look worse, but it’s still a lot better than what the “soft data” says.
A statistical measure called a Z-score can be used to show this. To put it simply, a Z-score shows how a piece of data fits into its own history. In a more technical sense, it shows how far away from the mean a data point is, measured in standard deviations.
Hard data includes core capital-goods orders, industrial production, and retail sales. Their Z-scores are flat to negative. Soft data, on the other hand, includes the University of Michigan’s consumer sentiment survey, the ISM manufacturing survey, and the ISM survey, which are all more steeply negative.
The Z-scores were found over the past ten years.
Put another way, it looks like the economy is starting to slow.
“The consumer was more resilient over the last year for longer than we would have expected, but various indicators, such as rising delinquency rates for credit-card and auto loans, indicate that some consumers are feeling the pressure of inflation and higher rates,” said Gisela Hoxha, an economist at Citi. “Recently deteriorating perceptions of the labor market could also lead to softer spending.”
Bill Adams, chief economist for Comerica Bank, said high interest rates are a major headwind to the economy, and fiscal policy is less stimulative this year than in 2023.
“Growth will likely stay in a lower gear in the rest of 2024. That will allow the U.S. economy’s productive capacity to catch up with demand, keeping inflation on a slowing trajectory,” he said.
