Chart of the Week: A Tale of Two Data Sets

Chart Two Data Sets

Most economic data come in two forms, hard data and soft data. Hard data measures actual economic performance, while soft data represents participant expectations. The chart above displays the year-over-year change in Industrial Production (the hard data), along with the ISM Manufacturing PMI (the soft data). As shown, a sharp divergence has recently emerged between the two data sets. Of note, the precipitous decline in survey data does not coincide with a concurrent decline in industrial production. This decline in expectations makes sense given current manufacturing headwinds, such as major trade disputes, a slowing housing market, a government shutdown, and numerous other geopolitical risks. However, these headwinds have yet to flow through to the actual economic data. Make no mistake, the two data sets will converge at some point. Whether they converge due to soft data rebounding or hard data declining will tell a lot about future economic activity.