Economic Sentiment Indicator Rises Slightly in May – But What’s Ahead?

RISMEDIA, June 2, 2009-The Dow Jones Economic Sentiment Indicator (ESI) continued a trend of modest improvement in May rising to 29, up from 27.6 in April.

While the ESI is up nearly seven points from its all-time low of 22.2 in November of last year, the figure for May is still significantly lower than one year ago, indicating that the U.S. economy has not yet worked through the current recession. Introduced in April 2009, the ESI has been back-tested to 1990, allowing a detailed retrospective look at the indicator’s propensity for anticipating changes in the U.S. economy.

“The ESI has tended to reflect more caution about the economy than other leading indicators,” Dow Jones Newswires “Money Talks” columnist Alen Mattich said. “The May increase leads me to believe that while the economy may have bottomed out, we still have a way to go before we can comfortably say we’re moving out of this deep recession.”

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. It uses a numerical scale from 0 to 100 to express the balance of sentiment in articles about the economy. 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 .