Bedel Barometer

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: 

BEDEL BAROMETER

Last updated September 2019

+7

+6

+5

+4

+3

+2

+1

0

-1

-2

-3

-4

-5

-6

-7

Current Score

+3

What's this?

The Bedel Barometer was developed in 2009 to provide a measure of the overall health of the U.S. economy. To do this, we identified 7 key areas that have historically been strong indicators as to the strength of our economy. Using a score of either positive, negative or neutral, we assign a value to each of these and are able to combine the results and reflect the overall measure that you see today.

How each indicator stacks up today

The Bedel Barometer offers a comprehesive measure of the overall health of the U.S. economy.

Rating: Neutral

Stock Market Performance

Why we watch it:

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

Recent Highlights:

Domestic and international equities stumbled a bit in August. The S&P 500 was down -1.6% in August, while domestic mid and small cap equities were down -2.9% and -4.9%, respectively. The S&P 500 is up 6.9% over the last three months and up 2.9% over the last twelve months.

The MSCI ACWI ex-US was down -3.1% in August. The index is up 1.5% over the last three months, but down -3.3% over the last twelve months.

August’s domestic and international losses were buffeted by economic implications of an inverted yield curve and a possible trade war with China.

Rating last changed: Sep 2019

Rating: Positive

Consumer Spending

Why we watch it:

Over 70% of the U.S. economy is based on personal consumption. A reduction in consumer spending will cause slower growth in the economy.

Recent Highlights:

Consumer spending increased 0.6% in July. The second estimate of Q2 2019 consumer spending recorded a 4.7% increase, which was the main driver in the Q2 GDP recording of 2.0%.

Personal income rose 0.1% in July. The personal savings rate was 7.7%.

Rating last changed: Dec 2017

Rating: Neutral

Manufacturing Activity

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 tracked by J.P.Morgan and IHS Market in association with ISM and IFPSM. The index monitors data 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 recorded 49.1 for August, below the consensus estimate. New orders decreased 3.6 in August, reporting a reading of 47.2.

Global PMI posted a reading of 49.5 in August, up slightly from July, but the fourth sub-50.0 reading in a row. PMI readings for the U.S. and China were among the largest industrial countries registering growth, while downturns were seen in the Eurozone and Japan.

Rating last changed: May 2019

Rating: Positive

Consumer Price Stability

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 will be going up slightly 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. The Fed’s inflation target is 2 %.

Recent Highlights:

Headline CPI rose 0.3% in July. Over the last 12 months, CPI rose 1.8%. Core CPI, which excludes food and energy, reported a 0.3% increase for July. Over the last 12 months, core CPI rose 2.2%.

Rating last changed: Jan 2019

Rating: Neutral

Housing Market

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 climbed 2.5% in July to a seasonally adjusted annualized rate of 5.42 million units. Sales are up 0.6% from a year ago.

The median home price in July was $280,800 up 4.3% from July 2018. This marks the 89th straight month of year-over-year gains. Unsold inventory is at about 4.2 month supply. A three to six-month supply is considered a healthy balance between supply and demand.

New home sales dropped -12.8% in July to a 635,000 annualized rate. The median sale price of new houses sold in June was $312,800. Unsold inventory is at about 6.4 month supply. Note that the new home sales report is typically very volatile and the data is frequently revised.

Rating last changed: Apr 2018

Rating: Neutral

Volatility

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 closed at 18.98 on August 30, 2019, in line with the historical average of around 19.2. The VIX remained steady in July with little volatility in the markets. Volatility increased some in the last few days of July leading up to the Federal Reserve press conference on July 31.

Rating last changed: Jun 2019

Rating: Positive

TED Spread

Why we watch it:

The TED Spread is the banks’ cost of borrowing short-term money minus the Treasury’s cost of borrowing short-term money. The difference between the three-month LIBOR interest rate and the three-month Treasury Bill interest rate measures the degree of riskiness of the bank lending market.  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 current spread as of September 1, 2019 is 0.14% (3-Month LIBOR 2.13% – 3-Month Treasury Bill 1.99%). The spread dropped slightly from last month. The current level of 0.14% is well below the historical average spread of 0.57%. We are comfortable with a positive rating at this level.

Rating last changed: Jun 2018


While past performance is not a guarantee of future results, the current score for the Bedel Barometer© is +4, which suggests growth in the foreseeable future, though with less certainty.