Economists use two types of data –soft and hard – to gauge the health of the US and Global economies. While both offer valuable insights, understanding their differences is crucial to making informed investment decisions.
Soft Data reflects a group’s feelings toward the economy. Consumers, small-business owners, CEOs, and homebuilders participate in sentiment surveys which offer subjective views of current and future conditions. In this way, Soft Data is often a leading indicator of an emerging economic trend.
Hard Data consists of quantifiable information based on real transactions. If Soft Data measures what people “say,” Hard Data shows what they actually “do.” Examples of Hard Data include US Jobs Reports, Gross Domestic Product, and sales volumes. Because this information is based on actual activity, it often lags Soft Data.
Presently there is a discrepancy; Soft Data is negative, but these feelings haven’t yet migrated to Hard Data. This typically occurs during periods of economic and geopolitical uncertainty. Investors must be cautious, even if the economy appears to be strong, negative sentiment can become a self-fulfilling prophecy.
