Economic data hasn’t just been strong — it’s exceeding expectations

Yahoo Finance

By Sam Ro

People have been concerned about the possibility that the economy could soon go into recession. Indeed, “recession” has been a trending topic, according to Google Search data, peaking during the week ending April 16.

Last week, I wrote a piece for TKer’s paid subscribers explaining how the economy’s massive tailwinds were more than enough to offset the shedding of some demand.

And throughout the week, we got a slew of data and anecdotes confirming as much.

(Source: Google Trends)
(Source: Google Trends)

According to the Federal Reserve’s Beige Book — a collection of anecdotes from the Fed’s business contacts across the country — the economy continues to grow despite challenges related to labor shortages and supply chain issues. (Emphasis ours):

“Economic activity expanded at a moderate pace since mid-February. Several Districts reported moderate employment gains despite hiring and retention challenges in the labor market. Consumer spending accelerated among retail and non-financial service firms, as COVID-19 cases tapered across the country. Manufacturing activity was solid overall across most Districts, but supply chain backlogs, labor market tightness, and elevated input costs continued to pose challenges on firms’ abilities to meet demand. Vehicle sales remained largely constrained by low inventories. Commercial real estate activity accelerated modestly as office occupancy and retail activity increased. Districts’ contacts reported continued strong demand for residential real estate but limited supply. Agricultural conditions were mixed across regions. Farmers were supported by surging crop prices, but drought conditions were a challenge in some Districts and increasing input costs were squeezing producer margins across the nation…”

According to the Philly Fed, coincident indexes 1 were up across all 50 states in March, reflecting broad economic growth. Check out the map below.

The Conference Board’s Leading Economic Index 2 also climbed to a new record high in March.

“This broad-based improvement signals economic growth is likely to continue through 2022 despite volatile stock prices and weakening business and consumer expectations,” The Conference Board’s Ataman Ozyildirim said.

From a labor market standpoint, there’s no sign that layoffs are picking up.

Quite the opposite. In the week ending April 16, initial claims for unemployment insurance benefits declined to just 184,000, the ninth straight week this measure was below 200,000.

(Source: Dept. of Labor)
(Source: Dept. of Labor)

As for a key driving force for stocks over time: First quarter corporate earnings have been exceeding estimates made by Wall Street analysts.

From FactSet: “For Q1 2022 (with 20% of S&P 500 companies reporting actual results), 79% of S&P 500 companies have reported a positive EPS surprise and 69% of S&P 500 companies have reported a positive revenue surprise.“

Anecdotes coming from corporations have generally been positive as well.

Bank of America confirmed spending has been robust and consumer finances are strong. From the bank’s earnings call:

“From our card spend to data, we have seen a strong recovery in travel, entertainment, restaurant spending… Even with the fuel costs up 40%… Importantly, despite March of last year including stimulus bonus, we saw the spending in the month of March 2022 on a comparable basis to 2021 13% higher by dollar volume and we saw a 7.4% increase in the number of transactions. So, both dollar volumes and numbers of transactions rose nicely… Our data showed continued growth in the average deposit balance across all customer levels, which suggests capacity for strong spending continue.”

Economists from Bank of America’s Global Research team shared this chart of checking and savings account balances, which shows households at all ends of the income spectrum have extra cash in their bank accounts.

United Airlines said demand for travel is rising at an impressively rapid pace. From CEO Scott Kirby’s appearance on CNBC:

“I’ve never seen in my career, and I’ve been in this industry a long time… such a hockey stick increase of demand.“

American Airlines echoed that sentiment, forecasting a big second quarter. From the company’s earnings announcement:

“American will continue to match its forward capacity with observed bookings trends. Based on current trends, the company expects its second-quarter capacity to be approximately 92% to 94% of what it was in the second quarter of 2019. American expects its second-quarter total revenue to be 6% to 8% higher than the second quarter of 2019.”

All that said, we can’t talk about the past week without discussing Netflix. Shares plummeted 35% after the company revealed it had lost 200,000 subscribers during the first quarter despite previously telling shareholders that it expected to add 2.5 million subscribers during the period. Additionally, management said it expected the company to lose another 2 million subscribers in the second quarter.

But don’t take Netflix’s disappointing developments as a sign that consumers are broadly canceling their streaming subscriptions. In fact, AT&T said its subsidiaries HBO and HBO Max added 3 million subscribers in the first quarter.

On a slightly more wonky note, the Citi U.S. Economic Surprise Index continues to trend higher, which means actual economic data has been exceeding estimates made by professional economic forecasters.

(Source: Bloomberg via @LizAnnSonders)
(Source: Bloomberg via @LizAnnSonders)

Big picture: Unfortunately, none of this may be what policymakers like the Federal Reserve want to hear right now as they fight inflation. That’s because as long as economic growth is outstripping the economy’s capacity to supply goods and services, there’ll continue to be inflationary pressure on prices.

For now, despite high inflation, rising interest rates and geopolitical uncertainty, the economy most certainly doesn’t seem to be headed for a recession any time soon.

Sam Ro is the author of He was previously managing editor at Yahoo Finance and a deputy editor at Business Insider, where he led the site’s coverage of global markets. He is a CFA charterholder.