Macro Surprise Pulse
Is the economy beating or missing expectations?
MSPM measures whether incoming economic data is systematically beating or missing consensus forecasts — a leading indicator of growth momentum revisions and market repricing.
The Macro Surprise Pulse (MSPM) measures the flow of economic data surprises — whether incoming data (employment, inflation, manufacturing, retail sales, housing) is beating or missing the consensus forecast at the time of release. A positive MSPM means the economy is systematically outperforming expectations; a negative MSPM means it is underperforming. The index is constructed to decay over time so that old surprises lose their influence as they're incorporated into new forecasts.
GDP growth measures the absolute pace of the economy; MSPM measures relative performance vs. expectations. A 2% GDP print can be a positive surprise if economists expected 1.5%, or a negative surprise if they expected 2.5%. Markets react to surprises, not to absolute levels — a well-understood principle in behavioral finance. MSPM operationalizes this: it tells you whether the economy is in a 'positive surprise regime' (where data tends to beat forecasts, supporting risk assets) or a 'negative surprise regime' (where misses are becoming systematic).
Non-farm payrolls and the CPI are the two highest-weight inputs, given their market impact and the reliability of consensus forecasts. ISM Manufacturing and Services PMI, retail sales, and housing starts are next. The index uses a dynamic weighting system that increases the weight of releases that have had unusually high market impact in the trailing 3 months — so during inflation-focused cycles, CPI gets more weight; during growth-focused cycles, labor market data dominates.
MSPM has predictive power for equity markets because positive data surprises tend to support earnings estimate revisions. Research consistently shows that periods of sustained positive MSPM correspond with forward earnings estimate upgrades, which in turn support equity valuations independent of interest rate moves. The inverse is also true: sustained negative MSPM is often a leading indicator of downward earnings revisions. However, MSPM should be read alongside CRSI and DRSI — strong data surprises combined with rising rates and credit stress can create a challenging environment even with positive MSPM.
