Surveys Are Useless for Economic Forecasting

Focus: OPTIONS

Don Kaufman Image Don Kaufman Co-Founder, TheoTrade

Investors who examine sentiment by consumers and business owners can follow more useful indicators like the VIX and ten-year bond, asserts Don Kaufman, founder of TheoTrade.

On Thursday (April 13), stocks sold off as they headed into the three-day weekend. Stocks finally followed bonds and the VIX, completing the “risk off” trade. The story remains the same in that stocks haven’t reacted to the negative news. Fiscal stimulus isn’t coming soon, monetary tightness is coming soon, and the latest economic data is weak. A 3% sell off in the S&P 500 doesn’t come close to pricing in this weak news considering how expensive stocks were at the all-time highs.

The past few weeks have seen sentiment indicators jump ahead of real economic data. This has led to investors taking a closer look at sentiment data to see if it means anything.

It turns out that consumer sentiment and small business owner sentiment is useless at projecting economic growth. The preliminary reading from the University of Michigan was released on Thursday. The overall index increased from 96.9 in March to 98.0 this month. The current economic conditions index reached 115.2, as you can see in the chart below. That’s the highest rating since 2000. The confidence in 2000 was the highest since the survey was started in 1960. As I said would happen, the partisan divide closed in the latest survey as the expectations index rose 7% for Democrats and fell 7% for Republicans.

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