We're about to see 'funky' economic data, says Charles Schwab's Liz Ann Sonders

Key Concepts

Consumer confidence (soft data), hard economic data, labor market cracks, tariff front-running, inventory build-up, company guidance withdrawal, trade deal impact (comprehensive vs. memorandum of understanding).

Disconnect Between Consumer Sentiment and Hard Data

Liz Ann Sonders addresses the divergence between consumer sentiment (soft data) and hard economic data. She notes a similar collapse in soft data at the end of 2022 into 2023, which wasn't corroborated by hard data due to strong underlying economic pillars. This time, she believes the situation is different, suggesting a higher likelihood of hard data catching down to soft data or some convergence between the two.

Consumer confidence metrics, including both present situation and future expectations, are weakening. Cracks are forming in the labor market, making the economic backdrop more tenuous than in the previous divergence.

Impact of Tariffs and Front-Running

The initial market reaction to tariff headlines was followed by a sense of relief, but Sonders emphasizes the lagging and "funky" nature of the data in the near term. Tariff front-running, particularly in autos and other retail goods, has flattered recent numbers. Builders have also engaged in this practice.

This front-running has led to inventory build-up, potentially delaying concerns about empty shelves. The data will experience a "push and pull" effect, making it difficult to discern the true economic trajectory in the next month or two.

Lack of Forward Guidance from Companies

Companies are increasingly withdrawing guidance, similar to the early pandemic period. This makes it difficult for analysts to provide clarity in an already murky economic environment. The lack of forward color from companies further complicates the assessment of the economy's future trajectory.

Potential Impact of Trade Deals

While trade deals could alter the forecasting landscape, Sonders emphasizes the importance of their nature. Historically, comprehensive trade deals take about 18 months to put together and close to four years for implementation. Discussions may focus on memorandums of understanding (frameworks) rather than comprehensive deals. The impact depends on the nature of the deals and whether they signal further agreements with other negotiating countries.

Technical Terms Explained

• Soft Data: Subjective data based on surveys and opinions, such as consumer confidence.
• Hard Data: Objective, measurable data, such as GDP, employment figures, and retail sales.
• Tariff Front-Running: Businesses accelerating purchases to avoid future tariffs.
• Memorandum of Understanding (MOU): A non-binding agreement outlining the framework of a deal.

Logical Connections

The discussion flows logically from the initial observation of the data disconnect to the factors influencing it (tariffs, front-running) and the challenges in forecasting due to limited company guidance. The potential impact of trade deals is then considered, highlighting the uncertainty surrounding their nature and implementation timeline.

Synthesis/Conclusion

The main takeaways are the increased uncertainty in the current economic environment, the potential for hard data to weaken, the distorting effects of tariff front-running, and the difficulty in forecasting due to limited company guidance. The impact of potential trade deals remains uncertain and depends on their specific nature and implementation. The overall message is one of caution and the need for careful analysis of economic data in the coming months.