The Big Picture
Column Summary:
* Hard data measures actions; soft data measures thoughts
* Consumer sentiment surveys are the best examples of soft data
* Hard data matters more as a guidepost for the economy, monetary policy, fiscal policy, and earnings prospects.
Economic data gets released every week. Most of it is "high-frequency" data, which means it is typically published monthly or weekly so that market participants can have a fair sense of economic conditions.
It is important information, too, not only because the data provide a view of how the economy is doing but also because that view shapes the stock market's earnings outlook.
The economic reports, however, are not all equal as market movers. Some, like the monthly Employment Situation Report, are ignition points for the market. Others, like the monthly Wholesale Inventories Report, have no market-driving influence.
There are many nuances when it comes to economic data, one of which is the difference between "hard data" and "soft data." Today, we will explain that difference.
The Simple Answer
In his press conference following the March 18-19 FOMC meeting, Fed Chair Powell acknowledged that "The hard data are still in good shape. It's soft data, the surveys that are showing significant concerns, downside risks, and those kinds of things."
He added that the Fed wants to focus on the hard data and that if the soft data is going to affect the hard data, we should know it quickly.
So, what is hard data, and what is soft data? In the simplest terms, hard data measures what consumers and businesses are doing, whereas soft data measures what consumers and businesses are thinking.
Hard data is quantitative. Soft data, which can be presented in a quantitative light, is qualitative at its core.
Thinking and Doing
The best examples of soft data are consumer sentiment surveys.
Each month, the Conference Board produces its Consumer Confidence Index, and the University of Michigan releases its Index of Consumer Sentiment. The former concentrates more on what consumers think about labor market conditions, whereas the latter tends to revolve around what consumers think about financial conditions and their income prospects. Both ask consumers about their inflation expectations.
In the charts below, one can see that consumer sentiment weakened in 2025. General takeaways from recent surveys are that consumers are worried about future employment prospects, personal finances, and inflation.
On the surface, these weakening consumer confidence reports sound ominous for economic growth prospects. What consumers think, though, doesn't always correlate with what they do, not over the short run anyway. The Secrets of Economic Indicators, authored by Bernard Baumohl, notes that a six-month or nine-month moving average of consumer confidence levels has been a better determinant of future household spending.
The Conference Board's Consumer Confidence Index has declined in each of the last four months. The University of Michigan's Index of Consumer Sentiment has declined for three straight months.
We would add that employment status is another key variable when it comes to what one thinks and what one does. People with jobs will continue to spend, although if they feel their job isn't secure and that finding a new job will be challenging, they may change their approach by cutting spending for discretionary items (e.g., vacations, concert tickets, apparel, eating out, electronics).
Real personal spending (i.e., inflation-adjusted) is hard data that captures what consumers are doing with their money and how they are allocating expenditures between goods and services.
Recently, there has been a pullback in real personal spending, but it is unclear if that is related simply to the aberrant winter weather in the south and the tragic wildfires in California or if it is something more. It would be remiss not to add that, despite the recent pullback, real personal spending was still up 2.7% year-over-year in February.
Fortunately, the labor market remains in solid shape. The unemployment rate (a lagging indicator) remains near a 30-year low at 4.1%, and initial jobless claims (a leading indicator) are at levels consistent with positive economic growth.
Initial jobless claims running above 400,000 for several weeks is more indicative of an economy at risk of a meaningful slowdown because of a weaker labor market that will adversely impact spending activity. The latest report showed the four-week moving average at 224,000.
As an aside, the unemployment rate is derived from a household survey conducted each month that asks respondents their employment status, whereas initial jobless claims are hard data culled from the filings made at state agencies.
Briefing.com Insight
The soft survey data provides valuable insight into what consumers and businesses are thinking, yet it has its shortcomings. The biggest one for consumer surveys, arguably, is how the respondent feels when they are logging a response to a survey question.
For instance, they might answer the question on the tenth day of the month after learning on the ninth day that their company is announcing layoffs. Naturally, that would make them predisposed to feeling more negative about their job security and income prospects.
However, when they went to work on the eleventh day of the month, they were told that not only is their job secure, but they were being promoted and getting a raise to compensate for the additional responsibility that came with the new role. Their view on job security and income prospects would be drastically different. That might get captured in revisions to the preliminary reports, yet it goes to show how survey data is based on what one is thinking and not on what one is doing.
Still, a prolonged weakening in soft data is not to be dismissed. It can mark an important inflection point in the economy, particularly if there is a coincident increase in layoffs and a rising unemployment rate.
The adage that "actions speak louder than words" rings true in the examination of hard data and soft data. Hard data captures the action, while soft data captures the words. Both matter, yet hard data matters more as a guidepost for the economy, monetary policy, fiscal policy, and earnings prospects.
--Patrick J. O'Hare, Briefing.com
(Editor's note: The next installment of The Big Picture will be published the week of April 7.)
