Dow Jones Economic Sentiment Indicator Rebounds to Highest Level Since August 2008
NEW YORK, November 2, 2009 – 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 (see chart). 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 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.
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.
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.