The Strategist

Macroeconomic data points: signal or noise?

In the second half of 2024, key economic trends emerged, shaping the global economic outlook. Disinflation returned on both sides of the Atlantic, the US labour market cooled further with slower job creation and falling wage inflation, and central banks began gradually easing their previously ultra-restrictive policies. However, recent data points have challenged this bigger picture, unsettling markets and reigniting inflation concerns. What do these recent data points tell us about the broader trends?

  • Date
  • Author Dr. Wolfgang von Hessling, Chief Economist Private Banking Europe
  • Reading time 10 minutes

Macroeconomic data
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Notably, a strong US labour market report in September showed over 250,000 new jobs created, pushing the unemployment rate down to 4.1%. This was followed by rebounding inflation expectations, exacerbated by a Consumer Price Index (CPI) report that, while still showing a 10-basis-point slowdown, missed forecasts of a sharper 20-basis-point deceleration. On top of that, a surprisingly robust ISM Services Purchasing Managers’ Index (PMI) reading of roughly 55 points has some investors wondering if the widely held view of slowing US growth is still valid. However, while these short-term surprises are clearly testing market assumptions, they don't necessarily signal a fundamental shift in the broader economic trajectory.

Context matters when interpreting data

When it comes to macroeconomic data readings, it's crucial to take their messaging with a grain of salt, depending on how isolated they come. Singular data points often carry more noise than signal, as economies move through longer-term cycles - expansion, peak, contraction, and trough - lasting months or even years. While markets rightly adjust based on new information, a single data release cannot necessarily be interpreted as an economic turning point. To determine if an indicator signals meaningful change, it’s essential to look at long-term trends, use moving averages to smooth out short-term fluctuations, and cross-check data for consistency. For example, a strong hiring figure carries more weight if paired with robust wage growth. Lastly, analysing a broad range of indicators provides a more comprehensive and balanced view of the economy than focusing too narrowly on a few.

Broader trends confirm the economic slowdown

In the bigger picture, recent data hasn’t fundamentally altered the economic outlook. US inflation, though not cooling as quickly as expected, is still declining, keeping the Federal Reserve (Fed) on an easing trajectory. The labour market, despite September’s strong job growth, continues to soften, as reflected in weakening employment sentiment, slowing wage growth, and rising part-time employment. And finally, the strong Services PMI is less telling given its historical volatility, having been in contraction just two months earlier, and being in stark contrast with weak manufacturing sentiment. Overall, these data points don’t change the narrative of slowing growth, softening labour markets, and gradual disinflation over the coming months. By focusing on broader trends rather than reacting to each new data point, we can better navigate the complexities of the current economic landscape.

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