Welcome to the deep dive. Today, we're tackling
a bit of a puzzle. We've got a stack of sources
here painting two, well, seemingly different
pictures of the moment. One looks at the hard
economic numbers versus how people actually feel
about the economy. that disconnect. And the other
dives into a really specific, very current political
debate. It's happening right now in the Senate
about government spending, social programs. Yeah,
big one. So our mission, let's try and unpack
this for you. Pull out the important nuggets
and maybe see if there are some surprising links
between these two things. Sounds good. Where
should we start? OK, let's dive in. How about
that economic picture first? The analysis you
mentioned points to something pretty fascinating
with the data, right? It really does. It makes
this crucial distinction between what it calls
soft data and hard data. OK, so soft data, that's
like surveys, sentiment, confidence levels, expectations,
kind of fuzzier stuff. Exactly. How people feel,
what they think will happen. And then the hard
data is the tangible stuff, measurable outputs.
Like job numbers, production figures, sales.
Things you can actually count. Precisely. And
what this analysis is showing is, well, a pretty
significant gap opening up between those two
right now. It seems to be growing. It's a gap.
How does that actually show up? What does it
look like? Well, the analysis points to things
like Bloomberg's soft data surprise index. OK.
That index tracks how sentiment data comes in
compared to forecasts. And lately, it's actually
turned negative. Negative meaning. The mood is
worse than analysts expected. That's it. The
feeling, the sentiment, is below expectations.
But at the same time, the hard data surprise
index. Which tracks the concrete numbers. Right.
That's actually stayed positive. Things like,
say, the labor market readings, they've been
coming in better than predicted. Huh. So you've
got this odd situation. The official stats look
relatively solid, maybe even better than expected.
But the surveys, the mood on the ground, it feels
weaker. Exactly that. And the analysis does offer
some reasons why this might be happening. Like
what? It puts some of it down to... ongoing factors
like the trade policy uncertainty we've seen,
you know, the tariffs and that whole situation.
Yeah, that makes sense. It's, well, it's hard
to feel confident about making big plans if you
don't quite know the rules of the game. Right.
And the analysis has some really good specific
examples that bring this soft versus hard split
to life. Take consumer confidence, for instance.
Okay. The expectations part of that, from the
conference board, it's actually a component of
the index of leading economic indicators. So
it's considered pretty important for forecasting.
Very much so. And the analysis notes this expectations
component saw a, well, a huge drop, 40 points
from its peak after the last election. Wow, 40
points just on expectations. That sounds like
a big deal. It is. And, you know, the analysis
points out that this plunge in sentiment kind
of implied we'd see weaker real GDP growth. And
did we? We did, yeah. First quarter. GDP came
in slightly negative. So initially it looked
like that soft data was, you know, a pretty decent
warning signal. Okay, so soft data dips, signals
a slowdown, hard data follows. That sounds logical.
Where's the divergence then? Ah, here's where
it gets really interesting according to the source.
The latest reading for May for those consumer
confidence expectations, it actually showed a
pretty significant rebound from April. So sentiment
bounced back? It did. It seems like that soft
data is suddenly playing catch -up a bit, maybe
aligning more with these stronger estimates that
are now coming out for a second quarter GDP.
So the soft data is maybe more volatile, less
connected to the underlying trends sometimes?
That seems to be the implication here, yeah.
It highlights that volatility. What about inflation?
That's something everyone feels, right? Definitely.
How does that fit in? Well, inflation is another
really fascinating example of this gap, according
to the analysis. It looks at the University of
Michigan's consumer sentiment survey. They ask
about inflation expectations? They do, both short
-term and longer -term. And the data shows those
expected inflation numbers have spiked up recently.
So people think inflation is going higher or
staying higher. Exactly. They expect it to be
higher, which is, well, it's in stark contrast
to the actual core consumer price index. The
official measure. Yeah, the actual core CPI has
continued to trend lower year over year. Whoa.
So expected inflation is up, but actual measured
inflation is down. That's the disconnect. A pretty
wide one. That's quite something. Are there other
examples in the analysis? Yeah, it also looks
at the misery index. Simple concept. Unemployment
plus inflation. Right. The actual misery index
has kept trending lower, mostly because unemployment's
been low. OK, makes sense. But the expected misery
index, using the UMICS surveys, expected unemployment
and expected inflation, that's shot up dramatically.
Ah, because of that spike in expected inflation.
Precisely. It's just another way to see how different
the felt reality or the expected one can be from
the measured numbers. What about businesses?
Small businesses especially, you'd think they'd
be sensitive to this stuff. Good question. The
analysis looks at the NFIB survey that's small
business optimism. And it shows, well, a similar
kind of pattern. How so? Optimism jumped right
after the election. But since then, about half
of that gain has reversed this year. OK. And
the analysis does note that NFIB data can sometimes
have a bit of a political skew. And the recent
big swings seem to be driven more by those soft
components. The sentiment. the expectations right
like that vibe session talk from a couple of
years back but the feeling was recessionary but
the data wasn't quite there exactly the analysis
specifically mentions that it says back in 2022
the nfid soft components plunged to all -time
lows like worse than during the global financial
crisis really worse than the gfc That's what
the analysis says the soft component showed.
But the hard components in that same survey,
things like actual hiring plans or sales activity,
they deteriorated, sure, but only fell to levels
you'd see in prior slowdowns. They didn't match
that massive plunge in sentiment. So sentiment
way overshot the actual activity slowdown. It
appears so. And the surge after the election
showed the split too. Sentiment sword. But the
hard activity measures just saw a bump nowhere
near the same scale It really does seem to show
how sentiment can you know get ahead of itself
or overreact? So this pattern soft data being
more jumpy more reactive and splitting off from
the hard data It seems pretty consistent across
different ways of measuring things based on the
source That's really the main takeaway here.
The analysis keeps coming back to persistent
uncertainty around Trade policy the terrorists
again. Yeah things like What are the goals? What
will the rates be? Which sectors get hit next?
That kind of ongoing question mark is likely
a big reason why confidence isn't really roaring
back, even if we've had some pauses lately. Does
it look different regionally? Sometimes breaking
it down gives you another angle. It does touch
on that. It uses the Philadelphia Fed's regional
surveys. And in late May, their manufacturing
index showed a sharp bounce. Which is interesting
since manufacturing is often right in the middle
of tariff fights. Right. But the services index
and services are a much bigger chunk of the economy.
Remember that barely moved up at all. And both
indexes were still actually in contraction territory.
Meaning activity was still shrinking in the region
according to the surveys. Correct. Still declining.
And you know weakness in services is potentially
more worrying. just given the size of that sector
in the U .S. economy. Yeah, absolutely. The U
.S. has a services surplus. It's the bulk of
GDP. Exactly. So weakness there could have wider
ripples. And the Philly Fed survey also had this
special question this month that the analysis
highlights. It's really relevant to that inflation
perception thing we talked about. Yeah. What
are they asked? They asked businesses if their
customers had become less price sensitive. OK.
And? Zero percent said yes. Zero. None. None.
0 % said customers were less price sensitive.
And on the flip side, half the businesses said
their customers had become more price sensitive.
Wow. That's pretty stark. It really is. And the
analysis notes, you know, this is a reminder
that for regular people, inflation isn't just
some abstract number economists track month to
month. No, it's how much did this cost last time?
Exactly. It's psychological. It's about that
price comparison, that volatility. And anxiety
over that is probably putting real downward pressure
on the soft data on how people feel, maybe more
than the headline inflation rate itself would
suggest. How are, say, financial markets digesting
all this? Does the analysis touch on company
earnings or analyst reviews? It does, yeah. It
looks at analysts' expectations for corporate
earnings. And it says, given all this policy
uncertainty, especially tariffs, you've seen
a rising number of S &P 500 companies either
pull their future earnings guidance altogether
or lower it. So companies are being cautious
about predicting the future. Seems like it. And
this has caused a decline in the earnings revision
ratio that tracks how analysts are changing their
forecasts. They're becoming more pessimistic
generally. But haven't actual earnings been OK
recently? Reasonably strong. Yes. According to
the analysis, actual earnings growth has been
trending higher looking through the first quarter
of 2025 anyway. But the analysts, they haven't
really extrapolated that strength forward. So.
They see the recent good results, but maybe because
of the company warnings and the uncertainty,
they're hesitant to predict it'll continue. That
seems to be the dynamic, yeah. So wrapping up
this whole economic piece, the analysis really
hammers home that policy uncertainty, particularly
what it calls the mercurial nature of trade policy,
is likely a key factor keeping expectations and
sentiment kind of shaky. The source concludes
that, you know, Businesses can adapt or nimble,
but the real problem is not knowing the rules
of the game. Right. Predictability matters. Immensely.
So the analysis suggests, if we get more clarity,
maybe soft data catches up to the hard data.
But if we don't, it's probably more likely the
hard data eventually catches down to the weak
sentiment. So view that soft data as a potential
early warning. That's how this source frames
it, yes. A crucial early warning system. OK,
that gives us a really clear sense of that economic
puzzle and the potential role policy uncertainty
plays. Now, let's let's pivot. Let's look at
our second source, which gives us a window into
a very specific, very timely policy debate happening
right now. Right. This one takes us straight
to Washington, focusing on comments from Pennsylvania
Senator Dave McCormick. OK, it's about a big
budget bill. It just barely passed the House.
And the source notes that everyone expects changes
as it goes to the Senate. And the politics are
pretty clear cut, at least on the House side
for PA reps. Yes. The source mentions that Pennsylvania
Democrats in the House all voted against it,
while all the state's Republican lawmakers voted
for it. OK. And what did Senator McCormick say?
Well, speaking on TV, the source quotes him saying,
it's pretty clear there's been out -of -control
spending in a Medicaid program. And he feels
the bill can be improved in the Senate by adding
more fiscal restraint. That's his goal. How are
Democrats framing this push for fiscal restraint?
What's their take, according to the source? Well,
according to the article, Democrats are warning
that the Republican aim here is to make pre -substantial
cuts to big social safety net programs. Like
Medicaid, which McCormick mentioned. Exactly.
Medicaid and also SNAP, the Supplemental Nutrition
Assistance Program, often called food stamps.
Democrats warn the goal is to slash these programs
to pay for tax cuts elsewhere, potentially for
wealthier individuals or corporations. Does the
source mention the scale of cuts Democrats are
warning about? It does. They're talking about
potential cuts close to 900 billion dollars from
Medicaid over 10 years and nearly 300 billion
dollars from SNAP over the same period. Those
are significant numbers. They are. And the source
quotes Pennsylvania's other senator, John Fetterman,
who's a Democrat, saying he flat out won't vote
for the bill because of the impact on these assistance
programs. OK, so you have the different political
perspectives. Does the source bring in any nonpartisan
context on the kind of cuts needed for major
savings. It does, yeah. It references the Congressional
Budget Office, the CBO. They're the nonpartisan
scorekeepers. And a CBO report back in March
apparently stated that if you wanted to cut federal
budget costs by around $880 billion over 10 years,
a number similar to the Medicaid figure being
discussed, it would be basically impossible without
making cuts to big programs like Medicaid, Medicare,
or the Children's Health Insurance Program. So
the CBO perspective seems to align with the idea
that achieving savings of that magnitude would
almost certainly involve these major programs.
It provides that nonpartisan context for the
scale, yes. It suggests that finding hundreds
of billions in savings without touching those
large entitlement programs is, well... Very difficult.
Okay. Getting back to Senator McCormick's specific
points on Medicaid, he did say the goal is protection
for some groups. Yes, the source quotes him saying
the goal is to ensure that the vulnerable people
for whom this program was designed are protected
and those benefits are protected. But he also
specified groups he thinks should not be covered.
He did. The source quotes him saying, So that
defines a specific area where he sees potential
savings or eligibility changes. From his perspective,
yes. It targets those specific groups for potential
exclusion or stricter requirements. Now, the
source also brings in info from the state agency
that actually runs these programs in Pennsylvania,
right? The Department of Human Services. Yes,
PADHS. And this gives some useful context on
how things currently work, how they check eligibility
and try to prevent fraud. What does it say they
do? According to PADHS, they check income and
household details against a whole bunch of databases,
state and federal. Things like the State Department
of Labor and Industry, Social Security Administration.
And importantly, given the senator's comments,
immigration database is to check citizenship
and residency status. So they explicitly check
immigration status currently. What else? They
also cross check with the IRS, the state tax
department, other public assistance agencies,
even the state lottery in the Department of Health.
Sounds like a pretty thorough vetting process.
And what about catching fraud or improper payments?
What does the source say about their efforts
there? It mentions the PADHS Office of Inspector
General investigated over 19 ,000 applications
just in the last fiscal year. 19 ,000. Yeah,
and it says the vast majority of those investigations
came from referrals within the human services
system itself, like caseworkers flagging issues.
Okay. And they have a specific unit. the Bureau
of Program Integrity, focused just on Medicaid
fraud. They even use, apparently, an AI system
for fraud detection, looking for outliers. And
they work with the state attorney general on
cases. Did they mention any results from these
efforts, any actual savings found? They did.
For the 2023 -24 fiscal year, PADHS reported
removing 325 providers from the Medicaid program
for cause, things like fraud or abuse. And they
estimate that saved nearly $34 million. OK. So
the source provides that context. There's an
ongoing effort within the existing system to
ensure program integrity and fine savings alongside
this political debate about broader changes to
spending and eligibility. Exactly. It paints
a picture of the current operational checks and
balances. Right. So let's step back. We've looked
at these two distinct areas from our sources.
We have this confusing economic picture, weak
feelings, okayish, hard data, with policy uncertainty
looming large. And then we have this very real,
very current political fight over government
spending, fiscal restraint, and who qualifies
for major safety net programs like Medicaid.
Yeah. So now let's try to connect them. What
happens when you put these side by side? Well,
one source tells us policy uncertainty dampens
confidence, right? Right. Key theme. And the
other source gives us a perfect live example
of exactly that kind of high stakes policy uncertainty
playing out right now. And it's about fundamental
things, spending, safety nets. It really is uncertainty
in action, isn't it? And could there be a more
direct link? You mentioned that Philly Fed survey
finding people are highly sensitive to prices
right now. Yeah, 0 % feeling customers are less
price sensitive, half feeling they're more sensitive.
So if people are already feeling squeezed by
costs, could the debate about potentially cutting
assistance programs designed to help with those
very costs make them feel even more anxious?
Could that feed directly into the negative sentiment
the soft data is picking up? That seems plausible,
doesn't it? If you're worried about making ends
meet, hearing about potential cuts to food assistance
or health care assistance, well, that's likely
to increase anxiety, not reduce it. It could
definitely contribute to that weak feeling about
the economy. It connects the psychological impact
of perceived inflation with the psychological
impact of policy uncertainty around support systems.
And what about the uncertainty itself, just the
political fighting back and forth? Regardless
of the final outcome of this Senate bill, how
much does the process, the prolonged debate,
the headlines, the arguments contribute to the
kind of uncertainty that the economic analysis
said weighs down confidence? That's a really
important point. The economic analysis stressed
that a lack of clarity on the rules of the game
is the drag. Well, a public often quite heated
debate about the future rules for major government
programs creates a period of intense uncertainty
about those rules. It seems very likely that
the stress and unpredictability of the debate
itself could be hitting sentiment, hitting confidence,
even before any changes are actually made. So
the debate itself becomes an economic factor.
Quite possibly, yeah. It contributes to that
atmosphere of unpredictability that businesses
and consumers seem to dislike so much. according
to the first source. Okay, so that first source
suggested soft data is like an early warning
system. Are these weak sentiment signals? We're
seeing warnings about the potential future impact
if these debated policy changes actually happen.
That's one possibility. Or are they more just
reflecting the current stress and anxiety caused
by the uncertainty of the debate itself? It's
probably... you know, some complex mix of both,
realistically. The sources don't give us a definitive
answer there, but they definitely make you think
about it. Is the sentiment predicting a future
hit from policy changes? Or is it reflecting
a current hit from policy uncertainty? It's a
really critical distinction to consider. Absolutely.
So we've taken a deep dive today into, well,
two really fascinating areas, this puzzling gap
between the economic numbers and the economic
mood. The hard versus soft data story. And this
very pointed, very current political debate over
government spending and the future of crucial
assistance programs. And understanding both the
data points and the different viewpoints in that
policy debate feels really key right now, doesn't
it? To just being well informed. Definitely.
These aren't just headlines. They really touch
on how we measure economic health and the big
choices being made about government's role. And
looking at them together, like we did, reveals
these potential connections. How policy debates
might directly impact economic sentiment, for
example, that you might miss otherwise. OK, so
here's a final, maybe provocative thought for
you to chew on as you go about your day. If consumer
confidence, if expectations are as sensitive
as that first analysis suggested, sensitive to
policy uncertainty, sensitive to feeling squeezed
by prices, does the very act of having a prolonged,
very public political fight over these fundamental
economic programs become a significant economic
headwind in itself? Could the disagreement itself
impact sentiment, impact behavior, even before
a single law is changed? What does that tell
us about the interplay between politics, perception,
and the economy?