US: Is there a Trump policy premium in manufacturing surveys? – Deutsche Bank

Matthew Luzzetti, Senior Economist at Deutsche Bank, explains that at this point the sharp divergence between hard and soft data in the US is well known.

Key Quotes

“Less well understood is how much, if any, of the improvement in survey data is dependent on expectations for pro-growth policy reforms from President Trump's administration. If this Trump "policy premium" is large, survey data may be at risk of softening in the coming months if there are policy disappointments out of Washington -- a development that could undermine the market's positive view on US growth momentum which has so far (rightfully) ignored weaker hard data and has instead focused on robust survey data.”

“While the improvement in some manufacturing surveys is consistent with fundamentals, we find that others have risen more than can be justified by improving domestic and international economic momentum. This excess optimism in manufacturing survey data could represent a Trump policy premium. And the scope for a retracement in survey data is potentially large if policy changes disappoint. If we correct for the premium built into several surveys, it could lower real GDP growth forecasts based on survey data by about 0.5-0.75 percentage points. This would leave growth forecasts based on surveys at a still strong 2.5-2.9%, but below the 3.4% growth rate anticipated by projections that include this premium.”