Bedel Barometer

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

+6

What's this?

Updated May 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 all-time high again. As of this writing, the Dow Jones Industrial Average was above 16,500 and S&P 500 above 1,880.

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. consumers stepped up spending a bit in February as incomes increased for a second straight month. Consumer spending rose 0.3 percent in February after a downwardly revised gain of 0.2 percent in January. Wages saw a 3 percent increase in median usual weekly earnings of full-time wage and salary workers in the first quarter of 2014 compared to a year earlier.

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 rose for a second straight month in March in a sign of recovery from a long winter that had put a damper on activity. PMI came in at 53.7 percent, an increase of 0.5 percentage point from February's reading of 53.2 percent, indicating expansion in manufacturing for the 10th consecutive month. Capacity utilization, a measure of how intensively firms use their resources, was up to 79.2 percent from a revised 78.8 percent in February. March's capacity utilization rate was the highest since June 2008.

The upturn in the global manufacturing sector lost some traction at the end of the first quarter of 2014. Global PMI came in at 52.4 in March, down from 53.2 in February, but remained above its average for the current 16-month sequence of expansion. However, the rate of expansion eased to a five-month low, mainly on the back of a slowdown in Asia. Growth of total new orders also eased slightly, despite improved inflows of new export business. 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 increased 0.2 percent in March on a seasonally adjusted basis. Over the last 12 months, prices increased 1.5 percent before seasonal adjustment. 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:  Existing-home sales were essentially flat in March, while the growth in home prices moderated. Sales gains in the Northeast and Midwest were offset by declines in the West and South. The median existing-home price for all housing types in March was $198,500, up 7.9 percent from March 2013. Total housing inventory at the end of March rose 4.7 percent, which represents a 5.2-month supply at the current sales pace, up from 5.0 months in February.

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 solid growth in the foreseeable future. 


Score:  +6

Identifying “Outside the Box” Gifting Strategies

Identifying “Outside the Box” Gifting 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!.
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