GDP: accurate, late, heavily revised
Gross domestic product is the broadest measure of output. It is also published quarterly, arrives weeks after the quarter ends, and gets revised across three releases. It is the scoreboard — authoritative, but useless for anything timely.
Two things to watch within it: the headline growth rate and the composition. Growth driven by inventories is low quality and reverses; growth driven by consumption is durable.
PMI: the timeliest growth read
Purchasing Managers' Index surveys ask businesses whether activity is expanding or contracting. The construction is elegant:
- 50 is the boundary — above means expansion, below means contraction.
- It is a diffusion index, not a quantity. It measures how many firms report improvement, not how much output grew.
- The direction of change matters as much as the level — 52 and falling is weaker than 48 and rising.
ISM manufacturing and services (US) and the flash composite PMIs (Europe) come out monthly, well before the relevant GDP print. This is why they move markets more than GDP does.
Using PMI as a nowcast
A sustained composite PMI above roughly 52 is broadly consistent with above-trend growth; below 48 with contraction. Between 48 and 52 is the muddle zone where the signal is weak and you should lean on other data.
Retail sales and industrial production
Retail sales is the timeliest hard read on the consumer. Watch the control group (which feeds into GDP) rather than the headline, which is distorted by autos and petrol. Industrial production covers the manufacturing and mining side.
The honest caveat
Surveys measure sentiment, and sentiment can diverge from hard activity for months. In 2022 several PMIs printed contraction while employment data remained strong. When soft and hard data disagree, the disagreement itself is information — and usually resolved by the hard data eventually.
How to check this yourself
Take the last twelve PMI readings and sort them into three buckets: above 52, below 48, and in between. Then, separately, note whether each reading was higher or lower than the one before it. Level and direction are different signals — a 49 that is rising is a very different economy from a 51 that is falling, and the headline alone does not tell you which.