How Investors Should Think About Economic Data in an Uncertain Environment
In the first quarter, economic data pointed to relatively strong and steady fundamentals for the U.S. The unemployment rate held steady at 4.2%, employers added a stronger-than-expected 228,000 jobs in March, retail sales rose 1.4% month-over-month, and inflation remained in check, with April CPI rising a seasonally adjusted 0.2% month-over-month. On an annual basis, inflation cooled to 2.3% in April, a four-year low. By these measures, the economic picture looks good.1
The problem is that none of this “hard data” is very relevant to where the economy is today.
Hard data like unemployment, retail sales, and inflation are rooted in actual transactions and behaviors, which generally makes it backward-looking. In typical business cycles, this data is very useful—it provides information about trends, pockets of strength and weakness, and fairly reliable signposts for where the economy is headed.
Beyond the Data: What’s Really Moving the Market
Strong jobs. Cooling inflation. Solid spending. On the surface, the economy looks fine—but most of that data is backward-looking.
If you’re only watching the usual data, you might be missing where the markets really headed.
Our May Stock Market Outlook Report2 connects the dots between sentiment, PMIs, and earnings revisions to reveal what’s driving markets now—and what’s coming next.
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- Asset allocation guidelines for today’s market environment.
- Expert forecasts for inflation, rates, and economic trends.
- Industry tables and rankings to help you spot opportunities.
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- And much more!
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In the current environment, however, it tells us the economy was on relatively strong footing before “Liberation Day.” It doesn’t give us any information about the impact of tariffs and uncertainty that we saw throughout April. For instance, while a monthly jobs report might show robust job creation, it may not fully capture the growing anxieties among businesses facing tariff threats or supply chain disruptions.
This is where “soft data” comes into the picture.
Soft data includes business and consumer surveys, sentiment indicators, and other metrics that can capture how businesses and consumers feel about the current environment and the future. In an unpredictable economic and policy landscape, I think it makes sense for investors to increasingly lean on soft data to gauge conditions more quickly than traditional economic indicators allow.
For example, in the month of March, foreign travel spending to the United States declined by $1.3 billion, the steepest drop since the pandemic. And as seen in the University of Michigan’s surveys of consumers below, current and future sentiments about the economy have declined substantially over the last several weeks.
Another very useful set of soft data, in my view, are purchasing managers’ indices (PMIs), which ask companies about their order books, production expectations, and hiring plans. Though monthly PMIs are reported in numerical form, they are qualitative data based on what industry leaders are saying about activity in their specific businesses. They can help investors gauge whether supply chains are tightening, or demand is softening, before those trends become apparent in official statistics.
At the end of the day, soft data can help investors gain a more current and complete picture of how the economy is performing, but it also has limitations. A notable example occurred in 2022 when deteriorating consumer sentiment surveys suggested a looming recession. However, we of course know that the recession never came, as strong labor markets and healthy consumer finances kept the economy growing. In that case, the hard data was telling us that the economy appeared to be holding up, even as the soft data suggested otherwise—and arguably exaggerated the risks.
The key for investors is to take a balanced approach. Let hard data provide you with the factual backbone of economic analysis, telling you what has happened and how trends are changing. Soft data complements it by offering hints about what might happen next, providing context for interpreting those facts. Neither type of data is inherently superior; they just offer different but equally important lenses through which to view the economy.
Bottom Line for Investors
Though tariffs have come down substantially and the U.S. and China are in dialogue, there is still uncertainty over how trade policy will ultimately look. Consumers are indicating lower expectations for economic growth, and businesses have been pulling earnings expectations lower. The magnitude of cuts to Q2 2025 earnings estimates has been bigger and more widespread than recent periods:
In uncertain economic periods, I think it makes sense for investors to cast a wider net in analyzing economic data, relying on both ‘soft data’ and ‘hard data’ for insights. Soft data can help investors stay attuned to shifts in sentiment and emerging risks that may not yet appear in traditional statistics. Hard data, while slower to reflect sudden changes, can remain your more reliable foundation for assessing actual economic conditions. Hard data grounds investors in what businesses and consumers are doing—not just how they feel.
Ultimately, neither hard nor soft data tells the whole story on its own. Each has strengths and limitations, and the most effective approach is to use them together. Investors who balance both—without leaning too heavily on one at the expense of the other—are better equipped to navigate uncertain environments with perspective and discipline.
Our May Stock Market Outlook Report5 connects the dots—helping you stay focused on what really matters for your portfolio.
Inside, you’ll find:
- Asset allocation guidelines for today’s market environment.
- Expert forecasts for inflation, rates, and economic trends.
- Industry tables and rankings to help you spot opportunities.
- Buy-side and sell-side consensus insights at a glance.
- And much more!
If you have $500,000 or more to invest and want to learn more about these forecasts, click the link below to get your free report today!
FREE Download – Zacks’ May Stock Market Outlook Report5
Disclosure
2 Zacks Investment Management reserves the right to amend the terms or rescind the free-Stock Market Outlook Report offer at any time and for any reason at its discretion.
3 Survey of Consumers. 2025. https://www.sca.isr.umich.edu/
4 Zacks.com. May 9, 2025. https://www.zacks.com/commentary/2466429/walmart-retail-sector-earnings-loom-a-closer-look
5 Zacks Investment Management reserves the right to amend the terms or rescind the free-Stock Market Outlook Report offer at any time and for any reason at its discretion.
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