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.

Here is how each indicator currently stacks up and its importance: 

BEDEL BAROMETER

Last updated April 2020

+7

+6

+5

+4

+3

+2

+1

0

-1

-2

-3

-4

-5

-6

-7

Current Score

-1

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 comprehensive measure of the overall health of the U.S. economy.

Rating: Negative

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 continued their losses to end the first quarter of 2020. The S&P 500 was down -12.4% in March, while domestic mid and small cap equites were down -19.5% and -21.7%, respectively. The S&P 500 is down -19.6% over the last three months and down -7.0% over the last twelve months.

The MSCI ACWI ex-US was down -14.5% in March. The index is down -23.4% over the last three months and down -15.6% over the last twelve months.

Global markets were devastated in Q1 by the COVID-19 pandemic. U.S. equities posted their worst quarter since 2008 as COVI-19 cases continued to spread around the world and the potential economic impact weighed on the markets.

Since Apr 2020

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 0.2% in February. The final estimate of Q4 2019 consumer spending recorded a 1.8% increase, which was the main driver in the Q4 GDP recording of 2.1%. Consumer spending results for March won’t come out until the end of April, which ultimately could downgrade this current positive rating.

Personal income rose 0.6% in February. The personal savings rate was 8.2%.

Since 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. Similarly, Global Manufacturing PMI is produced by IHS Markit in association with ISM and IFPSM. It is compiled by IHS Markit from responses to monthly questionnaires sent to purchasing managers in survey panels in over 40 countries, totaling around 13,500 companies. It has the same value ranges as the ISM manufacturing report.

Recent Highlights:

ISM manufacturing dropped to 49.1 for March 2020—below February’s 50.1 reading—but well above the consensus estimate for March of 45.0. New orders also dropped in March to 42.2, from February’s reading of 49.8.

Global PMI posted a reading of 47.6 in March, slightly above February’s reading of 47.2, as the COVID-19 virus continues to cause disruption around the globe. This slight increase is almost entirely due to stabilization of the China PMI (50.1 for March). The Global PMI, excluding Mainland China, is 46.6, its lowest level since May 2009.

Since 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 0.1% in February. Over the last 12 months, CPI rose 2.3%. Core CPI, which excludes food and energy, reported a 0.2% increase for February. Over the last 12 months, core CPI rose 2.4%.

Since 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 increased 6.5% in February to a seasonally adjusted annualized rate of 5.77 million units. Overall sales are up 7.2% from a year ago.

The median existing-home price in February was $270,100, up 8.0% from February 2019. This marks 96 straight month of year-over-year gains. Unsold inventory is at about 3.1-month supply. A three to six-month supply is considered a healthy balance between supply and demand.

New home sales dropped -4.4% in February to a 765,000 annualized rate. The median sale price of new houses sold in February was $345,900. Unsold inventory is at about 5.0-month supply. Note that the new home sales report is typically very volatile and the data is frequently revised.

Since Apr 2018

Rating: Negative

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 53.54 on March 31, 2020—well above the historical average around 19.2. The VIX spiked in the middle of the month, closing at 82.69 on March 16, a record high. Mounting concerns around the Coronavirus caused more volatility in the markets.

Since March 2020

Rating: Negative

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 at the end of March 2020 was 1.34% (3-Month LIBOR 1.45% – 3-Month Treasury Bill 0.11%). The spread widened significantly at the end of March, compared to February’s spread of 0.21%. The 3-month LIBOR rate did not change much from February, but the 3-month Treasury Bill declined significantly from 1.25% to 0.11%. The current TED Spread of 1.34% is meaningfully higher than the historical average spread of about 0.57%.


Since Apr 2020


While past performance is not a guarantee of future results, the current score for the Bedel Barometer© is -1. The coronavirus has caused more uncertainty in the short-term.

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