Sunday, September 10, 2023

Economic Revision Hell -

Macro investing is focusing on mapping data about the overall economy into market returns. It is accepted that markets will react fast to new information surprises, but there may still be residual information that can be used to find macro trends. These macro trends can be used to find trends in market prices. There is a problem with this framework - revisions. 

If there are data revisions, it will be hard to make any judgments on the macro environment. Eventually we can tell a story about the macro economy and markets, but the revisions and delays in data means it can only be used as a narrative about what happened in the past.

The nonfarm payroll is a perfect example of revision hell, and it has gotten worse since the pandemic. There will be revisions during recessions as the economy adjusts across sectors, but we are now seeing a flip from positive to negative revisions. Employment is a critical to get right, but how much stock should you place in these numbers if we are subject to large revisions?


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