(30 December 2019)DAILY MARKET BRIEF 1:Was 2019 better than we think?

The US employment report is one of the most closely watched statistics in financial markets. As the previous chart shows, you should watch for quite a while before deciding what has happened. Revisions to payrolls have averaged over forty-one thousand since the start of 2018. Nearly three-quarters of the revisions have been positive.

This creates an interesting problem for economists in financial markets. Should economists forecast what they believe to be correct? Or should economists try to forecast the incorrect initial number that the financial markets will react to? Data shows that economists are (just about) closer to the "true" payrolls number than the initial estimate on average. For example what seemed like a big underestimation in June this year turned out to be almost exactly right.

We can see the trend of revisions across a wider range of data releases by looking at a "revise index". This works the same way an economic "surprise" index does. If a key data release from the past is revised in an economically positive way, the index goes up one. If a key data release from the past is revised in an economically negative way, the index goes down one. The level of the index is not important – in fact it is an irrelevant number. It is the direction the index is trending that matters. A rising index means that data is repeatedly being revised higher after publication. A falling index means data is repeatedly being revised lower.

US growth data has tended to be revised higher since October, after a long period when upward and downward revisions were fairly evenly balanced. This is not the dramatic bias of 2018, when data was continually being revised higher, but there has been a slightly better history than first assumed.

In Germany, there are proportionately more sentiment numbers relative to proper economic data than in the US. Nonetheless there has been a strong trend to revising past data higher. Germans seem to be biased towards being pessimistic when first reporting their numbers. The public relations problem for Germany is that first impressions do seem to last in the minds of investors.

France and the Netherlands have been more stable in their revisions than Germany in recent months. Spain looks more like Germany, with a trend of positive revisions. In Spain's case these seem quite focused in the consumer sector. Twenty out of twenty two retail sales numbers have been revised higher since the start of 2018.

Investors in financial markets are inevitably forward looking. The interest is on what can be earned in the future, not what has happened in the past. However, the tendency to revise economic data significantly may mean that investors who only look ahead have a misunderstanding of the health of a specific economy. Every once in a while it is worth pausing to consider what really happened, not what you think happened.