Thought of the week

As mentioned in our 2019 Outlook, we expected the U.S. economy to slow this year as fiscal stimulus begins to fade. However, recent data, such as the ISM and Empire State manufacturing surveys, suggest that the economy is cooling at a faster pace than we anticipated. That said, as this week’s chart shows, this slowing in economic activity can be attributed to a deceleration in the soft data, which are survey and confidence based, while the hard data – measures of actual economic data – have remained fairly resilient. Housing has been the one exception on the hard data side, as higher mortgage rates have weighed on activity, but given the decline in rates at the end of the year, housing may begin to pick back up. Soft data tend to be driven by sentiment, suggesting the U.S. government shutdown as well as the lingering U.S.-China war have weighed on how people are feeling about the current environment. While sentiment measures should not be ignored, investors should find comfort in knowing that the underlying economy is not deteriorating as fast as the soft data suggest, as the hard data continue to point to a relatively healthy pace of economic growth

Source: JP Morgan Asset Management, Weekly Insight January 21, 2019