What’s Really Happening in the Economy?

Hello and welcome, everyone, to this month’s market update for March 2025. My name is Steve Latham, and I am the Chief Investment Officer for Bernicke Wealth Management. Today, we’re going to be discussing economic data.

The data that we are specifically focusing on is going to be put into two categories. The first category is soft data, and the second category is hard data.

And the reason why we’re going to separate these two is because there’s been a lot of conversations happening across a variety of different outlets around how the economy is doing. Is it good, is it bad, or are we going to a recession? Should there be other concerns that we’re focusing on? And what we want to show you are some of the pieces of data that people are using to create these arguments, both in the negative light and in the positive light.

And the reason we talk about soft data versus hard data is because soft data, the data that is more focused on sentiment and feelings, tends to be quite a bit more volatile over a shorter period of time. Whereas hard data that’s focused more on economic figures such as employment inflation that are more tangible tends to be less volatile and focusing more on a longer run period of time.

So we want to separate these two, because depending upon what side of the argument you’re on, you could use the soft data versus the hard data as something that really drives your overall conclusion for where the economy is going.

Soft Data

So let’s start with a couple pieces of soft data.

The first here is consumer sentiment surveys across the United States.

These are focusing on individuals who are purchasing goods and services and how they’re feeling overall about the economy. Going back ten years, we can see that up until Covid sentiment was relatively high, relatively not volatile, of course, until Covid hit. And then we’ve been jogging around quite a bit since then.

And what we see here, just in the last couple months, is that that sentiment has been showing a negative downward trend.

So what we would conclude there is that sentiment is falling and therefore the economy is going in a negative direction.

However, we can see that sentiment has actually grown quite a bit since the middle of 2020. And sentiment even near-term is quite volatile, where this could turn on a dime if something happens in the economy and changes over time.

Purchasing Managers Indices (PMI)

Now, going into business oriented sentiment, this can be measured through purchasing managers indices, specifically the manufacturing PMI and the services PMI. If we go back over the last about year and a half, we can see that on the left hand side, the manufacturing PMI is actually still elevated from where we were a little over a year ago, but has been trending down over the last couple of months.

The services PMI on the right hand side is more pronounced, showing that we had relatively stable services PMI until more recently at the beginning of the year, where that has been falling quite precipitously.

Now, what this is telling you is that businesses are starting to view the economy a little bit more cautiously. They may not be purchasing up much.

They may be increasing their prices to hedge against future economic downturns. From their perspective, they may be seeing prices on the inputs of the goods that they use in order to produce their products increase. And this all comes through in the PMI data. So currently we’re seeing again in this soft piece of data that things are trending negatively.

Atlanta Fed’s GDPNow Forecast

The last piece of data that I want to show is not quite soft, not quite hard, but it sits somewhere in between, which is the Atlanta Fed’s GDPNow forecast. And the reason why it sits in between is because it’s taking current pieces of information that come through on a daily basis and tries to estimate where the GDP is going to be for the next quarter’s reading.

And again, the GDP or the gross domestic product is simply a gauge of how much we are producing in goods and services as a country. And this really fell off a cliff here over the last couple of weeks, specifically because businesses are importing more goods than they are exporting more goods. And the reason why they’re importing, at least as far as the surveys are telling us, is because of the threat of tariffs.

They’re trying to get the goods in the country before the prices increase as a result of potential tariffs. And when you import more, that is a negative piece of data to your overall GDP.

So right now there’s a lot of headlines suggesting that GDP is going to be negative this quarter. It’s entirely possible that it is because of all the imports.

But if that’s a one time thing we may see that reverse in the future quarters as the threat of tariffs comes off the table, or we have more time to digest what those tariffs actually look like over the next couple of months and quarters.

Hard Data

So switching to hard data, we want to see what’s actually in the numbers. What are we seeing as far as the reports for quantitative data, data that is measurable and what we can see in a couple of these pieces that we’re going to show is an economy that’s still relatively stable.

Bank of America Consumer Report Card

Bank of America puts together a consumer report card every month that’s publicly available. And in the last month’s consumer report card, they showed us that consumer spending was continuing to increase over the last year by the tune of 1.9%…. So that means that consumers are still relatively comfortable with the amount of spending that they’re doing. If they saw some caution coming up in the economy, we would see this number drop because consumers would insulate their spending a little bit more to protect against potential downturn in their employment or potential increases in prices.

Employment Numbers

Speaking of employment, we can look at some recent employment numbers to also suggest that the economy is drumming along just fine.

Looking at the top chart here, the employment change month over month, which just shows us how many jobs have been added or subtracted from the economy, continues to be positive over the last 12 months. The averages are well above 100,000 jobs added.

The last month’s reading was 183,000 jobs. So we still see relatively healthy expansion of the jobs market. The bottom chart shows all the job openings, which still remain elevated from pre-pandemic levels. So currently we have 7.6 million jobs available, according to the job openings number. And all that means is, if you’re somebody who needs a job or is looking for a job, you have plenty of access to a broad breadth of jobs available to you through the United States with all these job openings currently.

Unemployment Rate and Consumer Price Index (CPI)

Now, the final pieces of hard data that will go over or again, employment related, but then also inflation related. On the top we have the unemployment rate. And yes, it’s ticked up here over the last three years a little bit, but it’s still relatively low compared to its historical past. We see a current rate of around 4%, which is only up from 3.5%, and most would still conclude that that is considered full employment, meaning that you’re unlikely to see that move materially lower for a long period of time.

So a relatively healthy metric from an economic standpoint. And finally, on the bottom here, we have the consumer price index. And that growth year over year, we’ve seen that come down quite a bit from where it was in its peak in the middle of the 2022’s. And then also it has increased a little bit here towards the end of the year, but we’re still at relatively low levels.

Yes. We’re not at where the Federal Reserve would like it to be at 2%, but 3% is certainly manageable from an economic standpoint as well.

Final Thoughts

So again, there’s a lot of data that you can point to right now that would suggest the economy’s doing poorly versus the economy is doing positive. And what we want to show is that there’s a lot of noise that you need to go through in order to really sift through what’s actually happening at the ground level.

We believe the economy is still on a relatively stable foundation. Yes, there’s more noise and more volatility that we need to work through, but that’s not abnormal in the context of the recent history. And what we want to do is keep an eye on the ball moving forward, and not necessarily what has happened in the past. So moving forward, we do believe that the economy is still growing, albeit in different ways, and we think that the economy overall is going to continue to grow, even despite some of the volatility that we’ve seen here recently.

So if you have any questions on that, please feel free to give us a call. We’d be always happy to answer your questions for you. Thanks.