The Ten Most Important Statistics for 2023 Markets
In the flood of market data, you could do worse than keeping your eye on these as you assess the odds of a ‘softish landing’.
At least 76% of all statistics are spurious,’ goes a joke. Investors who find themselves awash in fresh numbers every day likely reckon the percentage much higher. And yet not all numbers are created equal. Just 10 data streams go a long way to explaining the state of a world that seems headed for a ‘softish landing’, to quote Jerome Powell.
Watch these closely. Any sharp divergence from expectations here will deliver a far worse (or better) outcome.
- U.S. wage growth: More than anything else, the Fed needs to keep inflation from triggering a spiral of wage increases that drive prices higher still. So far, inflation expectations over the next five years remain well contained at 2.4%, and the fresh report that annual hourly wage growth has been slowing to 4.6% represents welcome news. But the overall trajectory still needs to stabilize before the Fed can declare victory and investors can shift their worries from inflation to recession.
- New home starts: Speaking of recession, a disorderly collapse of the housing market remains a central risk to most benign scenarios. The shock from higher mortgage rates, however, risks delivering just that if prices don’t stabilize at lower levels. A structurally-tight market makes that unlikely right now, but any serious blow to consumer confidence risks lasting damage to a key element of the recovery.
- Household savings: At their peak in August 2021, American households had accumulated $2.3 trillion in excess savings from higher government transfers and lower lockdown spending. This cash pile has dwindled to $1.2 trillion late last year, and it has all but disappeared for the poorest households. But for middle and upper-income families, this money still provides a welcome cushion for consumer confidence ahead of a likely rise in unemployment rates.
- European gas consumption: A combination of conservation and mild weather helped the continent avoid the worst fears of gas rationing last fall. Indeed, German households and industry have reduced gas consumption by 25% and 35% respectively. Reserves may still be close to half full when spring comes, helping avoid another expensive scramble for next winter’s supply. But the challenges remain and any change in the supply or the price could raise fresh risks.
- Germany IFO survey: Rising business expectations for Europe’s largest economy late last year suggested that the worst of the economic damage from the Ukraine war may have passed. Beyond a milder energy shock, government stimulus has helped soften what is likely a multi-year transition for industries that have come to depend on inexpensive Russian energy supplies. Recession may still come, but this rebound in sentiment suggests it will be far milder than expectations just a few months ago.
- China consumer mobility: A disorderly re-opening will likely deliver heart-wrenching headlines over the next few weeks as COVID infection and death rates rise. But the recent market rally suggests investors now expect a strong recovery driven by a pick-up in mobility rates. Whether measured in terms of urban traffic congestion or subway passengers, an uptick in activity by the end of February will give the best sense of whether China may even exceed current growth forecasts of 5%.
- China property sales: The total value of buildings sold has dropped 30% since the peak in July 2021. Home prices have been falling, too. Beyond the impact on the real economy, property investment has been a key savings vehicle for Chinese families and the collapse delivered a serious blow to consumer confidence on top of strict lockdown measures. Looser restrictions on property developers are finally convincing investors that the worst may be past, but home price stability will be a key element in determining just how fast China can grow.
- Japan machine orders: After a stunning post-pandemic recovery, this proxy for global industrial demand has now been posting declines compared to a year ago. A fast recovery in China should see these numbers edge higher this year, but they bear close watching.
- South Korean exports: With a wide-open economy and trading partners around the world, this monthly data release is among the best measures of global trade flows. Exports fell 25% in March 2020 over the previous year, but rebounded last summer with 45% annual growth. The current reading down 9.4% growth from a year ago reflects the possibility for more sustainable growth to global trade.
- Global oil inventories: These should grow over the next two years if the U.S. Energy Information Administration’s forecasts are right, rising to 102.2 million barrels per day. This number could come in lower if Russian production falls or if Chinese demand surprises on the high side. Any significant disruption to current expectations for global supply and demand could deliver a fresh inflationary shock and de-rail recovery.
Of course, there is much more data to track and many other economic dynamics to understand. But if these come in as currently expected, it could be a much better year than most investors seem to fear. More important, if you see any sharp deviations from current forecasts, you will have a head start on other investors who are drowning in spurious statistics.