Bedel Barometer

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

+6

What's this?

Updated November 2013

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 all-time high again. As of this writing, the Dow Jones Industrial Average was above 16,220 and S&P 500 above 1,850.

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 more than expected in January, increased 0.4 percent after advancing 0.1 percent in December. The increase in spending was driven by a 0.9 percent jump in services, the biggest gain since October 2001. This was likely attributed to the demand for heating as consumers tried to keep warm during an unusually cold spell. Wages rose 0.3 percent in January after being flat the prior month. With spending being slightly above income growth, the U.S. saving rate, was unchanged at 4.3 percent.

Consumers have generally been cautious spenders since the end of the recession. Nevertheless, most economists expect spending to rise at least 2% or higher this year given the steady increase in job creation, rising home values and higher stock prices we have experienced. This should bode well for the economy.

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:  U.S. manufacturing output rebounded more than expected in February and recorded its largest increase in six months. PMI increased to 53.2 from 51.3 the prior month, indicating economic activity is gaining momentum after being dampened by severe weather. When excluding the US, the global PMI is trending lower. India and Australia numbers improved slightly while China, Brazil and the Eurozone expanded at a slower pace, raising concerns about a possible global slowdown. It’s worth noting that the slowdown in China is partially engineered and controlled as the government trying to crackdown on shadow banking and rebalance the economy toward domestic driven consumption growth. Given that the overall momentum is mixed, we are holding a neutral but optimistic 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 rose 0.1 percent after increasing 0.2 percent in December. Over the past 12 months, prices rose 1.2 percent on a seasonally adjusted basis and 1.5 percent, compared to.1 percent in December. Given inflation in the overall economy is still fairly tamed, we are assigning a positive rating.

Housing Market Rating: Positive

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:  After reporting a sharp drop in U.S. homebuilder confidence in the previous month, homebuilder confidence rebounded modestly in the month of March to a seasonally adjusted 47. Economists had been expecting the index to show a stronger rebound to a reading of 50. The small increase comes after a fall of 10 points in February, the biggest one-month decline on record. The report confirms that housing was slowed by poor weather, but also indicated builders are facing some headwinds aside from the weather such as difficulties finding labor and land. A warmer spring could aid home builders. Unseasonably cold weather has been delaying construction of houses and discouraging would-be buyers from shopping. A warmer spring could give a boost to the housing market.

Although we lost some momentum has been lost due to higher interest rates and unusually frosty winter, housing has experienced a healthy recovery over the past two years. Overall, despite some headwinds, housing still has room to run, albeit likely at a more normalized rate.

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 moved moderately higher in the last few months but the reading remains relatively low.

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% is well below the average historical spread of 0.60%.

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 modest growth in the foreseeable future. 

Score:  +6

Identifying “Outside the Box” Gifting Strategies

Identifying “Outside the Box” Gifting Strategies

In a planning meeting with a new client and her son, the son brought up several long-held stocks in his mother’s portfolio that have essentially a zero cost basis. He mentioned that any repositioning of the portfolio needed to take tax consequences into account. We had previously learned that the client liked to make annual gifts to her children. We pointed out that she could gift the zero-basis appreciated stock instead of cash. She would avoid having to pay tax and the children could then dispose of the stock or hold it as they saw fit. The son was especially enthused about the idea.  We feel suggestions like this are the reasons people hire us.
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