Bedel Barometer - A Measure of the Overall Health of the U.S. Economy | Wealth Management and Retirement Planning | Bedel Financial Consulting, Inc. Indianapolis

Bedel Barometer

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


What's this?

Updated August 2017

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:
So far the equity markets are having a good year. The S&P 500 is up about 9.7% while Dow Jones is up 11.1% as of August 4th. The performance internationally is even better with MSCI ACWI ex US up 17.3%. Although valuations in many areas of the U.S. market seem stretched, the recent pickup in earnings growth indicates that the market may not remain expensive. Moreover, the prospect of infrastructure spending and tax cuts by the Trump administration may provide a tailwind for corporate earnings.

Consumer Spending Rating: Neutral
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:
Consumer spending slowed slightly in June to 0.1% compared to 0.2% in May. It’s the weakest spending since February. Nevertheless, consumption spending was pretty strong in Q2, 2.8%, adding a boost to the GDP. Real disposable personal income decreased 0.1% and the personal saving rate edged down to 3.8%.

Manufacturing Activity Rating: Positive

Why we watch it: The health of the economy is dependent on the health of the manufacturing sector. Historically, it has been the path to development and an important driver of economic growth. Domestic manufacturing activity is tracked by the Institute of Supply Management (ISM) which releases a monthly index while global activity is produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM. The index monitors things like employment, production inventories, new orders and supplier deliveries. It is based on surveys of more than 300 manufacturing firms and it’s considered an important economic measure. The index value ranges between 0 and 100. A value below 50 may indicate a slowdown in the economy, especially if the trend persists over several months. A value above 50 likely indicates a time of economic growth.

Recent Highlights: ISM manufacturing continued to stay strong in July as it registered at 56.3. Although new orders, production and plans for employment all declined, they remained at very high levels, suggesting a continued solid pace of expansion in the US manufacturing sector.

Global PMI edged up from 52.6 in June to 52.7 in July. Growth continued to come from European nations which benefited from strong inflows of new export business, while Asia continued to struggle.

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:
Headline CPI fell 0.2% in June. Over the last 12 months, the CPI decelerated to 1.6% while the core CPI, which excludes food and energy, remained stable at 1.7%. In general, while headline inflation remains very low, most other areas of the economy are seeing moderate price increases.

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 fell 1.8% in June to a seasonally adjusted annualized rate of 5.52 million units. Sales of single-family units declined by 2.0%, while sales of condos remained unchanged. On a regional level, sales fell in the South 4.7%, Northeast 2.6%, and West 0.8%, but increased in the Midwest 3.1%. The median home price climbed 6.5% from June 2016 to $263,800. Unsold inventory is at about 4.3 months supply at the current sales pace. A three to six-month supply is considered a healthy balance between supply and demand.

New home sales increased by 0.8% in June to a seasonally-adjusted annualized rate of 610k units, following a 4.9% increase in May.  Inventory available on the market edged higher to 5.4 months of available supply. Note that the new home sales report is typically very volatile and the data is frequently revised.

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:  The VIX has been low all year and is now trading around 10, the lowest level since 1993.

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:
  Current spread is 0.25% (3-Month LIBOR 1.31% – 3-Month Treasury Bill 1.06%). Even though both LIBOR and the Treasury bill rates are have been creeping up, the spread is still below the average historical spread of 0.60%.

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

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this article will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio.  Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Bedel Financial Consulting, Inc. Portfolio Managers.  The opinions expressed are those of Bedel Financial Consulting, Inc. and are subject to change at any time due to the changes in market or economic conditions.       
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!