Seeing Through the Truth of U.S. Economic Data: Using 'Time Lag' to Uncover False Prosperity

Recently, many people have asked me: 'Can we trust the economic data released by the U.S. government? Could it be manipulated?'

My core idea is very simple: don't just look at a single piece of data, but compare it within the entire time series.

U.S. economic data is divided into three categories:

The first category is Leading Data

For example, ISM Manufacturing PMI and money supply, which act as a 'trailer' 3 to 9 months in advance, telling you where the economy might be heading.

The second category is Coincident Data

For example, weekly initial unemployment claims and retail sales, which reflect 'the here and now'.

The third category is Lagging Data

Such as unemployment rate and non-farm payroll numbers, which serve as 'historical playback' and typically reveal the impact of economic changes several months later.

Under normal circumstances, an economic downturn unfolds in order: leading data turns negative first, coincident data follows with weakness, and lagging data deteriorates last.

So, if you see U.S. leading data declining for several consecutive months, but lagging data (especially employment) is still reaching new highs, be cautious as this could indicate data manipulation, or the government may wish to delay releasing bad news.

A real case: In the second half of 2022, the U.S. ISM Manufacturing PMI continuously fell below the neutral line, and the growth rate of the money supply also rapidly declined; these leading indicators were warning of an economic slowdown. However, the unemployment rate published at the beginning of 2023 dropped to a 50-year low, and the market was swayed by this set of 'beautiful data', leading to a short-term rebound in U.S. stocks. As a result, less than three months later, the unemployment rate began to rise again, triggering a wave of layoffs in manufacturing. Those who paid attention to the leading indicators had already reduced their positions to hedge against risks at the peak of the rebound.

Of course, it is almost impossible to manipulate all U.S. data comprehensively and long-term, as the data is dispersed among multiple agencies such as the Bureau of Labor Statistics, the Institute for Supply Management, the Federal Reserve, and the Census Bureau, which can cross-verify each other.

The real opportunity for investors lies in: when the market is misled by lagging data and overlooks leading indicators, you can position yourself at the moment when asset pricing is wrong, earning excess returns.

Remember, looking at leading, coincident, and lagging data together not only allows you to assess the authenticity of the data but also enables you to make decisions ahead of others.