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Several recent consumer sentiment surveys have shown a deterioration of “soft data.” However, economists are still waiting to see if it appears in the “hard data” of retail and inflation reports.
Soft data generally tracks the sentiments of consumers and business leaders. Economists look to this data for clues about what comes next in the economy.
Hard data enumerates pricing, spending, hiring and other economic activity over time.
In the wake of President Donald Trump’s tariff announcements, economists and analysts have grown nervous that lower sentiment could foretell a slowdown in economic activity.
Some economists expect that recent poor consumer and business sentiment will begin showing up in the economy in the form of slower sales and weaker growth. So far, there’s little indication that those feelings have turned into actions, as there have yet to be noticeable changes in data that would demonstrate a meaningful pullback in the economy.
“Given where we are, it seems like only a matter of time before grim sentiment feeds into the hard data,” Nationwide Financial Market Economist Oren Klachkin wrote after last week’s disappointing consumer sentiment results. “This may not occur right away because of front loading, but softer spending is likely on the horizon.”
So-called “soft data” are generally survey results of either consumers or business leaders that show how people feel about the economy.
Market watchers track sentiment surveys for consumers, small businesses, and home builders, among others. Closely followed Purchasing Managers Index (PMI) surveys of manufacturing and service sector executives are another example of soft data.
“Hard data” mostly comes from measurements collected during business activity, like prices charged, sales volumes, job listings, and factory production levels. U.S. jobs data, inflation reports, and gross domestic product (GDP) readings are examples of hard data.
“Hard data provides a factual basis for analysis, while soft data offers valuable insight into the sentiment surrounding the economy,” wrote Steve Latham, chief investment officer at Bernicke Wealth Management. “By assessing both types in tandem, we can make more informed decisions.”
Soft data is important because sentiment can result in actions. People who worry about the economy may not go out and spend. For example, since the U.S. economy heavily relies on consumer spending, poor consumer sentiment surveys can make economists nervous.
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