Spread Between 'Hard' And 'Soft' Data At 17-Year High

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by: Financial Sense

By FS Staff

Bloomberg's Matthew Boesler (@boes_) tweeted out the following chart showing that the spread between "hard data" and "soft data" surprises is now the widest it's been in 17 years.

What does this mean and why is this important? It tells us that business and consumer optimism has run very far ahead of the economic fundamentals.

The spread or difference between the two is listed in red, "hard data" in blue and "soft data" in orange.


Source: @boes_

One thing we should point out in looking at this graph is that "soft data" surveys appear to be much more volatile than actual "hard data" since surveys, of course, are a representation of business and consumer psychology vs. slower moving economic trends. Given that the spread between the two is currently at its widest as far as the data goes back, i.e. 17 years, we should expect a "reality check" to take place.

According to Ralph Acampora, who will be speaking on our Financial Sense Newshour podcast this Saturday, after being elected, new presidents tend to see a 6-month honeymoon period on average before economic realities resurface and the euphoria wears off. In that case, Ralph asserts, the animal spirits driving the current Trump rally may start to wane in another month or two.

Given the very wide divergence between reality and perceptions currently, investors may be set up for a big disappointment should Trump fail to implement many of his pro-growth policies quickly.