Talk sense, not sentiment – UBS

There are times when readers of financial journalism may question whether they have wandered into the twilight zone. Headlines proclaiming that ‘manufacturing output weakens’ and ‘manufacturing output strengthens’ can follow each other with lightning speed. The problem is that the media often misrepresents sentiment as economic reality, UBS’ economist Paul Donovan notes.

Manufacturing output is unchanged over the year

“Over the past two years, sentiment surveys have done a poor job of capturing economic reality. Since January 2023, the US ISM manufacturing survey’s production index has signaled a contraction two-thirds of the time. Actual manufacturing output was been remarkably stable. In 2024. the German manufacturing PMI has consistently signaled a catastrophic collapse in output. Manufacturing output is unchanged over the year.”

“Survey after survey is showing a pessimistic bias, which does not translate into a negative reality. Media portrayals of weaker reported sentiment as being the same thing as economic reality give a very misleading view of the economy.”

“This may be a bigger problem in Europe than the United States. The more limited number of data releases from Europe and the lengthy delays in getting real world data published may give sentiment surveys greater media prominence. Investors need to remember that such surveys err on the pessimistic, and reality is not nearly as bad as people say it is.”