Dow Jones Economic Sentiment Indicator Rebounds; Rises to 36.9, Highest Level Since August 2008
November 02 2009 - 8:50AM
PR Newswire (US)
Media optimism on economy again runs counter to consumer sentiment;
Stock market gains, GDP growth lead positive economic coverage NEW
YORK, Nov. 2 /PRNewswire/ -- The Dow Jones Economic Sentiment
Indicator (ESI) rose to 36.9 in October, up from 34.1 in September
as a result of positive media coverage of ongoing stock market
gains and news that the gross domestic product rose at an annual
rate of 3.5 percent in the third quarter. The gain in the ESI runs
counter to unexpectedly large drops in two leading consumer-based
economic indicators. The Dow Jones Economic Sentiment Indicator
aims to predict the health of the U.S. economy by analyzing the
coverage of 15 major daily newspapers in the U.S. The two leading
consumer-based economic indicators, the University of Michigan
Consumer Sentiment Index and the Conference Board's Consumer
Confidence Index, use national surveys to measure consumer
attitudes about the state of the U.S. economy. The Consumer
Confidence Index dropped dramatically to 47.7 in October, its
second consecutive monthly decline. The Consumer Sentiment Index
fell to 69.4 in October after having posted an unexpectedly strong
rise in September. According to Dow Jones Newswires 'Money Talks'
columnist Alen Mattich, the divergence in the indicators can be
explained by the difference in how the media and consumers view
economic news. "Consumers are likely to focus on the continuing bad
employment news because of the fear that they could be next,"
Mattich said. "On the other hand, there was a drop off in coverage
of the recession as the media focus on broader positive economic
trends such as the stock market's rebound, improved corporate
earnings and the growth in the GDP outweighed coverage of mixed or
negative news during the month." The ESI has risen 10 out of 12
months since its low of 22.2 in November 2008, data that confirm
the consensus among economists that the U.S. recession ended
sometime early in the summer. "The ESI's strong rise since its lows
in November 2008 shows the U.S. economy is clearly getting better,
a message confirmed by the big jump in third-quarter GDP," Mattich
said. "But the ESI's relatively low level suggests the recovery
remains vulnerable to reversal. In the past two cycles, an economic
upturn wasn't firmly established until the ESI reached the upper
30s or lower 40s." Mattich points out that a gain in the ESI
historically indicates improvement in the labor market, but
significant improvement may still be months away. "In past economic
recoveries, increases in the ESI have lead improvements in non-farm
payroll by two to five months and improvement in the unemployment
rate by five to seven months," Mattich said. The ESI represents one
of the most comprehensive and far-reaching examinations of media
coverage as an economic indicator. The ESI's back-testing to 1990
shows that the ESI clearly highlighted the risk that the U.S.
economy was sliding into recession in 2001 and 2008 and suggests
the indicator can help predict economic turning points as much as
seven months in advance of other indicators. Unlike some other
indicators where 50 is a clear break-point between recession and
recovery, the ESI needs to be read with reference to longer trends.
Based on the ESI's performance since 1990, previous recoveries have
been marked by substantial month-to-month gains, with a jump of
three points seeming to be a sign of significant improvement. A
drop below 50 marks the point at which there is a clear risk of a
slowdown. The Dow Jones Economic Sentiment Indicator is calculated
using a proprietary algorithm through Dow Jones Insight, a media
tracking and analysis tool. More information about the Economic
Sentiment Indicator and its development is available at
http://solutions.dowjones.com/esi . Dow Jones Insight uses
innovative text mining and analytic technologies to help
organizations keep informed about relevant issues, news,
conversations and trends emerging in mainstream, Web and social
media. Dow Jones Insight's global content collection includes more
than 25,000 news and information sources as well as blogs, message
boards, and posts from YouTube and Twitter. About Dow Jones Dow
Jones & Company is a News Corporation company. (Nasdaq: NWS,
NWSA; ASX: NWS, NWSLV; http://www.newscorp.com/) Dow Jones is a
leading provider of global business news and information services.
Its Consumer Media Group publishes The Wall Street Journal,
Barron's, MarketWatch and the Far Eastern Economic Review. Its
Enterprise Media Group includes; Dow Jones Business &
Relationship Intelligence, Dow Jones Newswires, Dow Jones Factiva,
Dow Jones Client Solutions, Dow Jones Indexes and Dow Jones
Financial Information Services. Its Local Media Group operates
community-based information franchises. Dow Jones owns 50 percent
of SmartMoney and 33 percent of STOXX Ltd. and provides news
content to radio stations in the U.S. The Dow Jones Economic
Sentiment Indicator is provided for analysis purposes only and Dow
Jones makes no representation that the indicator is a definitive
predictor of sentiment or the health of the U.S. economy. This
report does not in any way reflect an opinion of Dow Jones
regarding the U.S. economy or the suitability of any investments.
DATASOURCE: Dow Jones & Company CONTACT: Rob Thibault of Dow
Jones & Company, +1-609-627-2680, Mobile: +1-609-216-4780, Web
Site: http://solutions.dowjones.com/esi
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