Data raise the question: Were economists wrong again?

Just two months ago, many economists thought the economy would crater. And indeed, the economy did decline in the first quarter.

Yet fears of a recession have faded, which raises the question, where is the economy going?

You’ve got me, I’m stumped.

The problem economists face is that the data are saying different things. Some indicate conditions are soft while others imply the economy is holding its own. None, however, point to strong growth ahead.

There are hard numbers that look at measurable factors, such as the number of jobs that were added by businesses. These are called “hard” data.

Alternatively, other data attempt to gauge issues that are not necessarily countable, such as confidence. These are called “soft” data. As such, they have to be interpreted differently.

But it doesn’t stop there.

Some numbers measure activity that has already occurred, some indicate things that might happen in the future and others are snapshots of what is happening right now. These are called lagging, leading, and concurrent data.

Understanding what these data are saying requires recognizing the differences in what the numbers actually measure.

If you wonder why economists like to say, “on the one hand, while on the other hand …”, that should give you some insight.

It is hard to interpret data, but that is our job so that is what we do.

Some of the most disturbing economic data right now are the numbers that describe feelings of households and business leaders.

The most closely watched is the University of Michigan’s Consumers Sentiment Index.

After four months of declines, the May measure was stable. But it was below its worst reading during the financial crisis and the COVID-19 pandemic, and was only slightly above the bottom hit during the 2022 inflation surge.

As for the Conference Board’s measure of consumer confidence, it did rebound sharply in May but remained near the lows reached during COVID and it is at a level “which typically signals a recession ahead.”

Meanwhile, the Conference Board’s CEO confidence measure cratered in the second quarter, posting “the largest quarter-on-quarter decline in almost 50 years.” It neared the lows seen in the inflation run-up and financial crises.

The falling confidence appears to be driven by uncertainty created by President Donald Trump’s ever-changing tariff policies at a time when clarity is what consumers and business leaders crave. Even if he always chickens out in the end, the uncertainty remains.

Should we be worried about the lack of confidence? Not necessarily.

The huge bounce in the Conference Board’s Consumer Confidence Index is an example of why these data may be iffy, to use a technical term.

Did economic conditions change significantly between April and May? Not really.

The president’s 90-day pause and lowering of the tariff rates still left U.S. consumers and businesses facing a potential surge in foreign goods prices unless the tariffs are lowered much further.

Emotions were running high and the pause just let everyone exhale.

If major trade agreements aren’t signed by the end of June, don’t be surprised if confidence falters sharply again.

But if significant trade deals are made, outlooks could improve considerably, and that is why data based, at least in part on emotions, have to be evaluated extremely carefully.

While lower confidence implies consumers may not spend in the future and businesses could cut back their hiring and investing, those trends are not baked in the cake.

Other, less-emotion-driven leading indicators, such as housing starts, auto sales, and unemployment claims tell a more mixed picture.

Home construction is stuck at low levels (bad) but unemployment claims have not increased (good). Vehicle demand jumped in March, but that may be a function of potential tariff price increases, not economic strength (uncertain).

The economy declined in the first quarter, but as I wrote in April, don’t assume the GDP report is any indicator of what is happening in the economy.

Similarly, we could see a rebound in the second quarter, which could also be misleading.

What may be most significant are the labor market data.

Job gains are holding up. They aren’t robust but they are not weak at all.

The stable unemployment claims data support the view that so far, firms continue to hire, not fire.

But the collapse in CEO confidence points to more cautious hiring ahead, so don’t be surprised if we start getting some weaker reports.

In addition, consumers are still spending at a decent pace, helped along by what was likely panic buying over fears that tariffs will cause prices to skyrocket.

Yet there are warning signs. The savings rate is rising, a potential indicator that households are becoming cautious about shopping.

Did economists overreact to the threats that tariffs create for the economy? Absolutely not.

The data are confounding. The soft and hard numbers are all over the place. The leading, lagging, and concurrent data are inconsistent.

But most importantly, politics are playing a role. If the president keeps changing his mind, trade and tariff policy — the overarching factor that is driving equity prices, interest rates, consumer and business spending decisions, and confidence — will remain uncertain.

The political uncertainty could be with us for many months to come, which means the direction of the economy will remain unclear.

So buckle up, the ride could get even more bumpy.