Dow Jones Economic Sentiment Indicator Gains in January

01 February 2011
Source : Dow Jones

With a gain of just under one point in January, the Dow Jones Economic Sentiment Indicator signaled that the U.S. economy is slowly pulling itself out of the recession. The ESI edged up from 46.1 in December to 46.9 in January, consolidating a positive 2.2 point gain in December.

“Fears of a double dip recession have fallen off the radar, but reporting about the economy is still short of the optimism we ought to be seeing at this stage, were this a normal expansion. This muted sentiment mirrors the lackluster trend in employment growth,” said Dow Jones Newswires “Money Talks” columnist Alen Mattich.

The ESI is determined by in-depth analysis of national news coverage across 15 daily newspapers.

As corporate earnings reports made headlines in January, strong profits from major retailers kept the tone positive. Apple reported a 70 percent increase in revenue following record holiday season sales and several retailers – including Sears Holdings Corp. and Tiffany & Co. – raised their earnings forecasts before reporting their numbers.

Positive news also came from the art scene as Christie’s and Sotheby’s said art buyers were back in the market as well as commercial real estate as developers are set to break ground on a new $150 million high rise in Los Angeles’ Wilshire district, among other projects around the country.

Pulling the indicator down was coverage of baby boomers’ lack of preparedness for retirement, revived discussion of the financial crisis spurred by the release of the Financial Crisis Inquiry Commission report, and rising rents for apartments as demand increases.

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. Using a proprietary algorithm and derived data technology, the ESI examines every article in each of the newspapers for positive and negative sentiment about the economy. The indicator is calculated through Dow Jones Insight, a media tracking and analysis tool. The technology used for the ESI also powers Dow Jones Lexicon, a proprietary dictionary that allows traders and analysts to determine sentiment, frequency and other relevant complex patterns within news to develop predictive trading strategies.

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. More information about the Economic Sentiment Indicator and its development is available at http://dowjones.com/esi .

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