Bedel Barometer

-6 -5 -4 -3 -2 -1 0 +1 +2 +3 +4 +5 +6


What's this?

Updated August 2014

Back in 2009, we identified key areas that have historically been strong indicators of the strength in the U.S. economy. The idea was to use these indicators to determine whether the economy was going to rebound or remain in crisis mode in the year ahead.

In the short run, the Bedel Barometer should be used as a measure of the overall health of the U.S. economy—not as a sign of the health of the stock market. In the long run, the health of the U.S. economy should have a significant impact on the performance of the stock market. 

Since its inception, the Bedel Barometer has consistently had a positive score, suggesting the economy was initially moving toward growth and then sustaining that growth.

Here is how each indicator currently stacks up and its importance:

Stock Market Performance Rating: Positive

Why we watch it:
The stock market tends to be forward looking and it is a leading indicator of economic growth.

Recent Highlights:
After a strong stock market performance in 2013 with the S&P 500 and Dow Jones trading at an all-time high, we saw a pull-back in January driven by emerging market concerns, a China slowdown and the implications of Fed tapering. The market has since rebounded and is trading close to an all-time high again. As of this writing, the Dow Jones Industrial Average was above 16,700 and S&P 500 above 1,940. 

Consumer Spending Rating: Positive
Why we watch it:
Over 70% of the U.S. economy is based on personal consumption. A reduction in consumer spending would cause a slower growth in the economy.

Recent Highlights:
 U.S. consumer spending accelerated to a growth rate of 2.5% in the second quarter, partly as a result of pent-up demand from the first quarter. The harsh winter interrupted activity across many industries as well as kept consumers away from malls and dealerships. Durable goods spending increased 14% which is the biggest quarterly increase since 2009. Wages and salaries rose 0.6% in the second quarter, the fastest pace since the third quarter of 2008.

Manufacturing Activity Rating: Positive

Why we watch it: The health of the economy is critically dependent on the health of the manufacturing sector. Historically, it has been the path to development and the most important cause of economic growth.

Recent Highlights:  Domestic economic activity in the manufacturing sector expanded in July for the 14th consecutive month. The PMI came in at 57.1, an increase of 1.8 from June's reading of 55.3. The new order number came in at 63.4, an increase of 4.5 from the 58.9 reading in May. Inventories of raw materials slowed to 48.5, a decrease of 4.5 from June. Overall, U.S. manufacturing is looking healthy.

The global PMI increased at its fastest pace since February from 52.1 in May to 52.7 in June. New orders, production and employment numbers were mostly higher. We saw some economic progress in countries such as China and Japan, each of which shifted from a contraction in May to slight growth in June. The Canadian PMI, our largest trading partner, increased from 52.2 to 53.5, reaching its highest point since December. The euro zone lost some momentum with the PMI decreasing 52.2 to 51.8. Additionally, manufacturers in emerging markets Brazil, Russia, and Turkey reported contracting levels of activity in June.

Consumer Price Stability Rating: Positive

Why we watch it:
Mild inflation is good for the economy, because it promotes consumption without destroying the value of people's savings. If you know something is slightly going up in price down the road, you'll be more likely to purchase it now. If this effect is mild, it doesn't hurt savings rates very much. Deflation, however, punishes an economy because it hurts consumption. If you know something will be cheaper tomorrow or next year, you're more likely to wait until tomorrow to buy it.

Recent Highlights:
U.S. consumer prices rose 0.3% in June. Over the last 12 months, prices increased 2.1%. The index for all items less food and energy rose 1.9% over the last 12 months, a slight decline from the 2.0 % figure last month. Although inflation is starting to creep up, it is still within a reasonable range. We continue to hold a positive rating. 

Housing Market Rating: Neutral

Why we watch it: The economy typically benefits directly and indirectly from increased housing activity. It is estimated that for every $100 in value resulting from housing construction an extra $40-$80 is added to the economy due to housing-related spending.

Recent Highlights:  Existing home sales rose 2.6% to a seasonally adjusted annual rate of 5 million June. May's rate was revised up to 4.91. The median existing home price for single-family homes, condos, townhouses and co-ops was $223,300 in June, which is 4.3% above a year ago. Current homes-for-sale-inventory supply increased to 5.5 months. New home sales of single-family homes fell 4.9% over the first six months of the year compared with the same period of 2013. Although the market appears to have cooled off this summer, the overall momentum of the housing market is still positive.

Volatility Rating: Positive

Why we watch it:
  VIX is the symbol for the Chicago Board Options Exchange's volatility index. It’s a weighted mix of the prices for a blend of S&P 500 Index options, from which implied volatility is derived. In other words, it measures how much people are willing pay to buy or sell the S&P 500. The VIX goes up when there’s turmoil in the market, and goes down when investors are content or at ease with the economic outlook.

We like to watch the VIX, because it measures the cost of buying insurance for stock protection (through options). When the cost of protection is high, volatility is usually high and the potential for declining stock values is higher.

Recent Highlights:  Volatility has edged up recently but remains relatively low to historical levels. Currently, the VIX is trading at 15.53 compared to the 20-year average of 20.

TED Spread Rating: Positive

Why we watch it:
The TED Spread is the Treasury’s cost of borrowing short-term money minus the banks’ cost of borrowing short-term money. When the spread is significant, banks worry about being repaid when loaning money to other banks, thereby creating uncertainty. This can cause slower growth in the economy.

Recent Highlights:
  The recent spread of 0.20% (3-Month LIBOR 0.23% – 3-Month Treasury Bill 0.03%) is well below the average historical spread of 0.60%. Data is as of July 31, 2014.

That makes six positive and one neutral. While past performance is not a guarantee of future results, the current score for the Bedel Barometer© is +6, which suggests solid growth in the foreseeable future. 

Score:  +6

Identifying “Outside the Box” Strategies

Identifying “Outside the Box” Strategies

While establishing an appropriate investment strategy with new clients, we take the time to consider every option, while ensuring the chosen plan does not have any negative unforeseen surprises. For example, if a client has several long-held stocks in their portfolio with very low cost basis, our first concern is the possible high tax consequence should they want to sell these holdings.  By taking the time to think “outside the box”, we may be able to accomplish another goal of the clients, such as gifting to family and charitable causes close the client.  By choosing to gift the zero-basis appreciated stock instead of cash to children or charities, the client is able to avoid having to pay long-term capital gains tax and the children and/or charity can benefit from this generosity, a win-win all around!