Bedel Barometer

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


What's this?

Updated October 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 16,680 and S&P 500 above 1,932.

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 rose 0.5% in August from a month earlier. Over the last 12 months, spending rose 4.3%. Additionally, consumers have stepped up their borrowing in recent months. Outstanding consumer credit, excluding mortgages, rose at a seasonally adjusted annual rate of 9.7% in July from the previous month. That was up from growth of 7.1% in June and 7.3% in May. Personal income rose 0.3% in August. All of the above are pointing towards the U.S. economy is on track for solid growth in third quarter.

Manufacturing Activity Rating: Neutral

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 continued to expand in September, albeit at a slower pace. The PMI came in at 56.6, a decrease of 2.4 from August's reading of 59. The new order number came in at 60, a decrease of 6.7 from the 66.7 reading in August. Inventories of raw materials registered 51.5, a decrease of 0.5 from August. Overall, U.S. manufacturing is looking bright.

Global manufacturing growth has struggled since the beginning of the year. Both Europe’s and Asia’s manufacturers are struggling to grow. Germany registered a surprise dip at 49.9 while France was 48.8 in September. The HSBC PMI for China registered at 50.2 in September, unchanged from the August reading which was a three-month low, indicating a slow expansion. The Canadian PMI, our largest trading partner, decreased to 53.5 from 54.8 in September. Overall, global manufacturing is sending mixed signals therefore we are holding a neutral rating.

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 fell 0.2% in August from the previous month. Over the last 12 months, prices increased 1.7%. Inflation has been creeping up somewhat during the spring, but the recent data indicates the pressure is easing. The low inflation is due to the sluggish five-year recovery which has resulted in little upward pressure on wages. The good news is that tame inflation provides the Fed with the flexibility to keep rates low without risking the economy overheating. 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 fell 1.8% to a seasonally adjusted annual rate of 5.05 million in August, after 4 months of increasing. Sales were down 5.3% from a year earlier, when the pace stood at 5.33 million.
The median price across the nation was $219,800 in August, up 4.8% from a year before. Prices have now risen on a year-over year basis for 30 consecutive months.

New-home sales increased 18% in August from a month earlier to a seasonally adjusted annual rate of 504,000, which is up 33% from a year earlier.   That was the biggest one-month jump since 1992 and the highest level of sales since May 2008. Nevertheless, new-home sales are only a small piece of the housing market. Additionally, the data is volatile and often revised. Although the market is giving us mixed signals, 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 16.84 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 0.21% (3-Month LIBOR 0.23% – 3-Month Treasury Bill 0.02%) is well below the average historical spread of 0.60%. Data is as of October 1, 2014.

That makes five positive and two neutral. While past performance is not a guarantee of future results, the current score for the Bedel Barometer© is +5, which suggests solid growth in the foreseeable future. 

Score:  +5

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!