Thursday, April 30, 2009

New Dow Jones Economic Sentiment Indicator

NEW YORK, April 30, 2009A unique new monthly economic indicator introduced today by Dow Jones offers what could be an early signal that the economy may be lifting off its low point but any recovery remains very tentative.

The Dow Jones Economic Sentiment Indicator (ESI) edged higher in April to 27.6, up from 26.3 in March. The ESI aims to predict the health of the U.S. economy by analyzing the coverage of 15 major daily newspapers in the U.S. It uses a numerical scale from 0 to 100 to express the balance of sentiment in articles about the economy.

“The green shoots of recovery may be making an appearance,” Dow Jones Newswires “Money Talks” columnist Alen Mattich said, “but they are as yet very small and very pale."

The ESI represents one of the most comprehensive and far-reaching examinations of media coverage as an economic indicator. The ESI has been back-tested to 1990, allowing a detailed retrospective look at the indicator’s propensity for anticipating changes in the economy. This historical analysis of the series 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.

“The Dow Jones Economic Sentiment Indicator represents a valuable new tool for measuring and anticipating key turning points in the economy,” Clare Hart, President of Dow Jones Enterprise Media Group, said. “And even though it is being released for the first time today, the ESI’s ability to anticipate those turning points is supported by nearly 20 years worth of data.”

3 Comments:

At 4/30/2009 4:06 PM, Blogger 2 said...

Sentiment seemed to bottom out on November 4th. Hmm.

 
At 4/30/2009 5:40 PM, Blogger 1 said...

I see the flaw in this sentiment indicator now...

It relies on newspaper stories which have a track record of being more than a little problematical at times...

 
At 4/30/2009 7:42 PM, Blogger JimJinNJ said...

I agree with 2. Having done a lot of backtesting myself, I know how easily it is to inadvertently curve fit the data. 18 years times 12 months is reasonable but not enough to bet on.

I saw a History channel piece the other night featuring a group botting the internet looking for patterns that predict future events--Nostradamus kind of stuff.

Back to 2--
You'd have to vet those newspapers rather well these days. Too many are in the tank and cheer leading for Obama.

 

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