Stop Bemoaning Britain’s Big Data Revision

The Office for National Statistics (ONS) admitted what many commentators we follow portrayed as a rather big error last week, revealing revised data showed that, instead of being over a full percent below its prepandemic high, UK gross domestic product (GDP, a government-produced measure of economic output) actually passed that milestone two years ago.^[i] Far from being the worst economy in the G7, a dubious distinction we have seen in publications we follow these past couple years, the UK was cruising right alongside France and decidedly not the metaphorical sick man of Europe. In the week-plus since this revelation, commentators we follow have spilled rather a lot of pixels griping over economic data’s allegedly worsening inaccuracy and the supposedly dire implications for investors. We take issue on two fronts. One, big belated revisions aren’t new. Two, we see no evidence initially inaccurate data beguiled stocks.

Economic data are always subject to revision, sometimes long after the fact. In 2012, the US Bureau of Economic Analysis adjusted its methodology to count intellectual property products as business investment and then recomputed data decades prior.^[ii] Amongst the less extreme examples, US data initially showed GDP rose in early 2008, and it wasn’t until late in the year that revisions showed recession had actually begun with the New Year.^[iii] Later, August 2011’s US unemployment data initially showed zero jobs created, which had commentators we follow discussing the possibility of a double-dip recession (two economic contractions in rapid succession)—and looking rather silly when the reading was revised up markedly that autumn.^[iv]

But stocks are well aware of this, in our view, largely because they are forward-looking. Our research suggests they price corporate earnings 3 – 30 months out, and they don’t wait for economic data to put numbers on what they live through. We have found they are extraordinarily good at sussing out the environment around them.

To see this in action, let us look at one of our favourite big revisions. For several years after the world began rebounding from the Global Financial Crisis in March 2009, double-dip recession chatter (two recessions occurring with only a brief period of growth in between) ran rampant in publications we follow worldwide. It seemed to dominate sentiment in the US and around the developed world, and for a time, it looked like the UK had one in late 2011 and early 2012, at least if we go by the popular definition of a recession being two consecutive quarters of falling GDP.^[v] According to data released at the time, UK GDP fell sequentially in Q4 2011, Q1 2012 and Q2 2012 (-0.3% q/q, -0.2% and -0.4%, respectively).^[vi] A UK double dip was a presumed fact. That is, until June 2013, when the ONS revised the numbers and revealed Q1 2012 GDP was flat.^[vii] No sequential drops, no double-dip recession. Subsequent revisions now show that UK GDP posted a flat Q4 2011, 0.8% quarter-over-quarter growth in Q1 2012 and a -0.1% Q2 2012 contraction, respectively, in that stretch—a cumulative expansion in the period.^[viii]

But to us, stocks never appeared to buy the belief that the UK was uniquely weak during this span. Exhibit 1 shows UK and world returns, both in pounds to avoid currency skew. As you will see, they moved basically in lockstep. The UK didn’t zig whilst the rest of the world zagged in early 2012, even though commentators we follow said it was basically the worst economy outside the debt crisis-ridden eurozone. Nor was there some massive catch-up rally in UK stocks once the revision hit the wires. Instead, the MSCI UK Investible Market Index (IMI) and MSCI World Index skipped hand-in-hand up the lane.

Exhibit 1: A Big GDP Revision Didn’t Puzzle UK Stocks

Source: FactSet, as of 8/9/2023. MSCI UK IMI total returns and MSCI World Index returns with net dividends, both in GBP, 31/12/2010 – 31/12/2013. Indexed to 100 at 31/12/2010.

So it seems to us that stocks can weather dodgy data just fine. Don’t get us wrong: We would love it if it didn’t take so long to sometimes get closer to the right numbers. But that is a fact of life in a world where so much data collection is survey-based and it is covering something as broad and complex as an entire nation’s economy. We think stocks know this and it is one reason they rarely get hung up on releases for long, in addition to the simple fact that all releases, whether new or revised, are backward-looking. They merely put numbers on what stocks already lived through. In our view, how results compare to sentiment can swing things short term, but then stocks return to looking ahead.