Economic data quality deteriorates — 2 thoughts for investors 🧮
Plus a charted review of the macro crosscurrents 🔀
📈 The stock market rallied last week, with the S&P 500 gaining 1.5% to close at 6,000.36. It’s now down 2.3% from its February 19 closing high of 6,144.15 and up 67.7% from its October 12, 2022 closing low of 3,577.03. For more on how the market moves, read: One of the most misunderstood moments in stock market cycles ⏱️
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Policymakers, politicians, business leaders, and investors all use economic data. So, most people agree that any data being cited should be high quality.
But everyone relies on data differently depending on their goals and interests, which means the implications of data quality varies depending on who’s using it.
Today, I’m going to provide some updates on deteriorating data quality and share some thoughts from the stock market investor’s perspective.
‘… errors … miscoded … misapplied …‘ 🙈
We got some unsettling news about data quality last week.
From the Bureau of Labor Statistics (BLS) on Tuesday:
Due to minor errors to weights associated with the introduction of a redesigned Current Population Survey (CPS) sample, some April 2025 estimates will be corrected on June 6, 2025. Major labor force measures, such as the unemployment rate, labor force participation rate, and employment–population ratio were unaffected. While corrections will be made to many estimates, the impact is negligible.
In April 2025, the CPS began to phase in a redesigned sample that is based on information from the 2020 Census. During the introduction of this new sample in April, a derived geographic variable used in the weighting process was miscoded, treating micropolitan areas like metropolitan areas, which led to misapplied noninterview weights for some cases.
That doesn’t instill confidence.
It didn’t end there.
Here’s the The Wall Street Journal on a BLS notice published on Wednesday:
The Bureau of Labor Statistics, the office that publishes the inflation rate, told outside economists this week that a hiring freeze at the agency was forcing the survey to cut back on the number of businesses where it checks prices. In last month’s inflation report, which examined prices in April, government statisticians had to use a less precise method for guessing price changes more extensively than they did in the past.
Economists say the staffing shortage raises questions about the quality of recent and coming inflation reports. There is no sign of an intentional effort to publish false or misleading statistics. But any problems with the data could have major implications for the economy.
None of that’s not great.
“These errors have consequences,” UBS’s Paul Donovan wrote on Friday. “Less understanding of U.S. inflation increases the chances of the Federal Reserve making a policy error (especially with the mantra of ‘data dependency’).”
The news only adds to ongoing concerns about the quality of government data, which relies on extensive surveys and analysis of those surveys.
One of the more discussed concerns in recent years has been the falling response rates to these surveys. The BLS publishes those response rates, and they’ve mostly been going down and to the right.
It takes a lot of resources to conduct these surveys. But the cost is justified by the value it brings to those making decisions about economic policy, monetary policy, and business.
It’s not totally clear how much these developments are affecting the accuracy of the data. But it certainly has affected the robustness of the data and the confidence of those using it.
Two thoughts for stock market investors 🤔
First, remember TKer’s rule No. 1 of analyzing the economy: Don’t count on the signal of a single metric.
Even when the response rates for these BLS surveys were higher, the results were still susceptible to revisions — and sometimes those revisions were significant.
And even when the data is accurate, it’s possible that the bulk of other data tells a conflicting story that may actually be the correct one.
As always, I’d also caution against reading to much into one month’s worth of data. Data can zig zag over short periods. The true picture always becomes more clear when you zoom out and examine trends, not single data points.
“For investors, it is important to remember that broad trends matter, and data precision is increasingly an illusion,” Donovan said.
This is why when analyzing the economy, it’s important to consider the confluence of data holistically and over time. (Kind of like how we do in TKer’s weekly review of the macro crosscurrents.) It’s extremely unlikely that all of the available data will be simultaneously wrong in the same direction over an extended period of time.
Second, the good news is that reported earnings from publicly traded companies are pretty much always accurate.
Recall TKer Stock Market Truth No. 5: “News about the economy or policy moves markets to the degree they are expected to impact earnings. Earnings (a.k.a. profits) are why you invest in companies.“
What investors really care about are earnings because they’re the most important driver of stock prices. And economic data has mattered because it has helped us calibrate our expectations for those earnings.
Every quarter, publicly traded companies report their earnings along with comprehensive financial statements. This information is not deduced from a sample like what we get in economic surveys. These quarterly statements cover all of the financial transactions that are executed, and the numbers are audited by third-party accountants. Outside of very rare occasions (e.g. accounting fraud, major failure of internal processes), these numbers are accurate and do not get revised.
So regardless of the accuracy of the economic data, what matters to investors is if companies are delivering on earnings.
The quarterly reset 🧮
To that second point, I like to think of quarterly earnings season as a time to reset and recalibrate my views as an investor in the stock market.
And it’s not just because the reported financial figures are complete and accurate.
We also learn how successfully companies have been able to adapt and execute in what may arguably be a difficult business environment as defined by the economic data.
This is not to suggest we should be dismissive of economic data.
Rather we should just be mindful of what “hat” we’re wearing as we consider data.
When we’re wearing our stock market hat, economic data matters to the degree it’s expected impact to earnings.
Deteriorating economic data quality is not good 🛑
To be clear, deteriorating economic data quality is a negative development for investors.
While investors have the benefit of getting audited financial figures every quarter, the companies they invest in are affected by decisions made by policymakers.
If policymakers are acting on bad data, their decisions may create inefficiencies in the economy and hinder business activity.
Everyone should be in favor of preserving and improving the quality of economic data, especially when that data is informing policy decisions.
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Related from TKer:
Review of the macro crosscurrents 🔀
There were several notable data points and macroeconomic developments since our last review:
👍 The labor market continues to add jobs. According to the BLS’s Employment Situation report released Friday, U.S. employers added 139,000 jobs in May. The report reflected the 53nd straight month of gains, reaffirming an economy with growing demand for labor.
Total payroll employment is at a record 159.6 million jobs, up 7.3 million from the prepandemic high.
The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — stood at 4.2% during the month. While it continues to hover near 50-year lows, the metric is near its highest level since November 2021.
While the major metrics continue to reflect job growth and low unemployment, the labor market isn’t as hot as it used to be.
For more on the labor market, read: The labor market is cooling 💼 and 9 once-hot economic charts that cooled 📉
💸 Wage growth could be lower. Average hourly earnings rose by 0.4% month-over-month in May, down from the 0.2% pace in April. On a year-over-year basis, this metric is up 3.9%.
For more on why policymakers are watching wage growth, read: Revisiting the key chart to watch amid the Fed's war on inflation 📈
💼 Job openings tick higher. According to the BLS’s Job Openings and Labor Turnover Survey, employers had 7.39 million job openings in April, up from 7.20 million in March.
During the period, there were 7.17 million unemployed people — meaning there were 1.03 job openings per unemployed person. This continues to be one of the more obvious signs of excess demand for labor. However, this metric has returned to prepandemic levels.
For more on job openings, read: Were there really twice as many job openings as unemployed people? 🤨 and Revisiting the key chart to watch amid the Fed's war on inflation 📈
👍 Layoffs remain depressed, hiring remains firm. Employers laid off 1.79 million people in April. While challenging for all those affected, this figure represents just 1.1% of total employment. This metric remains below prepandemic levels.
For more on layoffs, read: Every macro layoffs discussion should start with this key metric 📊
Hiring activity continues to be much higher than layoff activity. During the month, employers hired 5.57 million people.
That said, the hiring rate — the number of hires as a percentage of the employed workforce — has been trending lower, which could be a sign of trouble to come in the labor market.
For more on why this metric matters, read: The hiring situation 🧩
🤔 People are quitting less. In April, 3.19 million workers quit their jobs. This represents 2.0% of the workforce. While the rate is above recent lows, it continues to trend below prepandemic levels.
A low quits rate could mean a number of things: more people are satisfied with their job; workers have fewer outside job opportunities; wage growth is cooling; productivity will improve as fewer people are entering new unfamiliar roles.
For more, read: Promising signs for productivity ⚙️
📈 Job switchers still get better pay. According to ADP, which tracks private payrolls and employs a different methodology than the BLS, annual pay growth in May for people who changed jobs was up 7% from a year ago. For those who stayed at their job, pay growth was 4.5%.
For more on why policymakers are watching wage growth, read: Revisiting the key chart to watch amid the Fed's war on inflation 📈
💼 Unemployment claims tick higher. Initial claims for unemployment benefits rose to 247,000 during the week ending May 31, up from 239,000 the week prior. This metric continues to be at levels historically associated with economic growth.
For more context, read: A note about federal layoffs 🏛️ and The labor market is cooling 💼
🏭 Business investment activity declines. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — declined 1.3% to $74.7 billion in April.
Core capex orders are a leading indicator, meaning they foretell economic activity down the road. The recent decline could portend slowing growth in the months to come.
For more on core capex, read: An economic warning sign in the hard data ⚠️
🤷🏻♂️ Services surveys were mixed. From S&P Global’s May Services PMI: “Service sector growth has improved more than first estimated in May, with confidence about the year ahead also lifting higher, buoyed in part due to pauses on higher rate tariffs. Companies have matched that optimism with increased spending and hiring. That said, the improvements come from a low base, following a very gloomy April, which saw growth nearly stall as confidence sank to a two-and-half year low. Reports from companies underscore how uncertainty about the policy outlook continued to act as a deterrent to expansion plans in May.“
The ISM’s May Services PMI reflected contraction in the sector.
👎 Manufacturing surveys weren’t great. From S&P Global’s May Manufacturing PMI (emphasis added): “The rise in the PMI during May masks worrying developments under the hood of the US manufacturing economy. While growth of new orders picked up and suppliers were reportedly busier as companies built up their inventory levels at an unprecedented rate, the common theme was a temporary surge in demand as manufacturers and their customers worry about supply issues and rising prices. These concerns were not without basis: supplier delays have risen to the highest since October 2022, and incidences of price hikes are at their highest since November 2022, blamed in most cases on tariffs. Smaller firms, and those in consumer facing markets, appear worst hit so far by the impact of tariffs on supply and prices“
The ISM’s May Manufacturing PMI reflected further contraction in the sector.
Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.
For more on soft sentiment data, read: The confusing state of the economy 📊 and What businesses do > what businesses say 🙊
🔨 Construction spending ticks lower. Construction spending decreased 0.4% to an annual rate of $2.152 trillion in April.
💳 Card spending data is holding up. From JPMorgan: “As of 30 May 2025, our Chase Consumer Card spending data (unadjusted) was 1.2% above the same day last year. Based on the Chase Consumer Card data through 30 May 2025, our estimate of the US Census May control measure of retail sales m/m is 0.45%.”
From BofA: “Total card spending per HH was up 0.5% y/y in the week ending May 31, according to BAC aggregated credit & debit card data. Relative to last week, airlines & transit saw the biggest rise in spending growth. Furniture saw the biggest decline.“
For more on consumer spending, read: We're gonna get ambiguous signals in the economic data 😵💫 and Americans have money, and they're spending it 🛍️
⛽️ Gas prices tick lower. From AAA: “The summer driving season is underway, and while gas prices normally peak this time of year, drivers are getting a reprieve. The national average for a gallon of regular is $3.14, down two cents from last week. Pump prices are 36 cents cheaper than last June, thanks to this year’s consistently low crude oil prices. Currently, oil supply in the market is outweighing demand. June gas prices haven’t been this low since 2021.”
For more on energy prices, read: Higher oil prices meant something different in the past 🛢️
🏠 Mortgage rates tick lower. According to Freddie Mac, the average 30-year fixed-rate mortgage declined to 6.85%, down from 6.89% last week. From Freddie Mac: “The average mortgage rate decreased this week, which is welcome news to potential homebuyers who also are seeing inventory improve and house price growth slow.”
There are 147.8 million housing units in the U.S., of which 86.1 million are owner-occupied and about 34.1 million of which are mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to movements in home prices or mortgage rates.
For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖
🏢 Offices remain relatively empty. From Kastle Systems: “Peak day office occupancy was 60.3% on Wednesday last week, as many workers extended the three-day holiday weekend. Occupancy on Tuesday after Memorial Day was 58.8%, down 3.4 points from the previous week. Washington, D.C. had the biggest drop around the holiday, falling 5.8 points to 30.3% on Friday and 4.5 points to 57.7% on Tuesday. The average low was on Friday at 30.6%, down 4.2 points from the previous week.”
For more on office occupancy, read: This stat about offices reminds us things are far from normal 🏢
📈 Near-term GDP growth estimates are tracking positive. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 3.8% rate in Q2.
For more on GDP and the economy, read: 9 once-hot economic charts that cooled 📉 and You call this a recession? 🤨
Putting it all together 🤔
🚨 The Trump administration’s view on tariffs threatens to disrupt global trade — with significant implications for the U.S. economy, corporate earnings, and the stock market. Until we get more clarity, here’s where things stand:
Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.
Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Job creation, while cooling, also remains positive, and the Federal Reserve — having resolved the inflation crisis — has shifted its focus toward supporting the labor market.
But growth is cooling: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like excess job openings and core capex orders have faded. It has become harder to argue that growth is destiny.
Actions speak louder than words: We are in an odd period given that the hard economic data has decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continue to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.
Stocks are not the economy: Analysts expect the U.S. stock market could outperform the U.S. economy, thanks largely due to positive operating leverage. Since the pandemic, companies have adjusted their cost structures aggressively. This has come with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.
Mind the ever-present risks: Of course, this does not mean we should get complacent. There will always be risks to worry about — such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, cyber attacks, etc. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.
Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect to experience as they build wealth in the markets. Always keep your stock market seat belts fastened.
Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t be able to overcome over time. The long game remains undefeated, and it’s a streak long-term investors can expect to continue.
For more on how the macro story is evolving, check out the previous review of the macro crosscurrents »
Key insights about the stock market 📈
Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.
10 truths about the stock market 📈
The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.
The makeup of the S&P 500 is constantly changing 🔀
Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.
The key driver of stock prices: Earnings💰
For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings have a very tight statistical relationship.
Stomach-churning stock market sell-offs are normal🎢
Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.
How the stock market performed around recessions 📉📈
Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.
In the stock market, time pays ⏳
Since 1928, the S&P 500 generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.
What a strong dollar means for stocks 👑
While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.
Economy ≠ Stock Market 🤷♂️
The stock market sorta reflects the economy. But also, not really. The S&P 500 is more about the manufacture and sale of goods. U.S. GDP is more about providing services.
Stanley Druckenmiller's No. 1 piece of advice for novice investors 🧐
…you don't want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there's overcapacity and they're losing money. What about when they're losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it's going to be in 18 to 24 months as opposed to now. If you buy it now, you're buying into every single fad every single moment. Whereas if you envision the future, you're trying to imagine how that might be reflected differently in security prices.
Peter Lynch made a remarkably prescient market observation in 1994 🎯
Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That's all there is to it.
Warren Buffett's 'fourth law of motion' 📉
Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.
Most pros can’t beat the market 🥊
According to S&P Dow Jones Indices (SPDJI), 65% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2024. As you stretch the time horizon, the numbers get even more dismal. Over a three-year period, 85% underperformed. Over a 10-year period, 90% underperformed. And over a 20-year period, 92% underperformed. This 2023 performance follows 14 consecutive years in which the majority of fund managers in this category have lagged the index.
Proof that 'past performance is no guarantee of future results' 📊
Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, just 4.21% of all U.S. equity funds in the top half of performance during the first year were able to remain in the top during the four subsequent years. Only 2.42% of U.S. large-cap funds remained in the top half
SPDJI’s report also considered fund performance relative to their benchmarks over the past three years. Of 738 U.S. large-cap equity funds tracked by SPDJI, 50.68% beat the S&P 500 in 2022. Just 5.08% beat the S&P in the two years ending 2023. And only 2.14% beat the index in the three years ending in 2024.
The odds are stacked against stock pickers 🎲
Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. In fact, most professional stock pickers aren’t able to do this on a consistent basis. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 24% of the stocks in the S&P 500 outperformed the average stock’s return from 2000 to 2022. Over this period, the average return on an S&P 500 stock was 390%, while the median stock rose by just 93%.
Sam’s bring the data issue to focus reminds me of my high school physics class when the words accuracy and precision were discussed.
Accuracy refers to the actual trueness of a number to its intent. Did the arrow hit the bull’s eye? Precision is the predictable trueness of the actual measurement and may not be accurate.
When data is imprecise or it is falsely assumed to be so it’s ’garbage in and garbage out.’
Much of what pundits use to read the tea leaves is garbage and the moves in that day’s S&P is laughable. Sam is worth his fee many times over as he gives us the perspective, the wisdom to discount the garbage so that we have more faith in ‘just stand(ing) there and do(ing) nothing in the ever presence of uncertainty (much more than the default) and sentiment driven ups and (particularly) downs.