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 December 2019

+7

+6

+5

+4

+3

+2

+1

0

-1

-2

-3

-4

-5

-6

-7

Current Score

+4

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: Positive

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 positive momentum through the end of November. The S&P 500 was up 3.6% in November, while domestic mid and small cap equities were up 3.6% and 4.1%, respectively. The S&P 500 is up 7.9% over the last three months and up 16.1% over the last twelve months.

The MSCI ACWI ex-US was up 0.9% in November. The index is up 7.1% over the last three months and up 11.2% over the last twelve months.

November’s domestic and international returns finished strong amid optimism that the U.S. and China trade issues would come to some sort of resolution. The S&P 500 posted 11 new closing highs during the month.

Since Dec 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 0.3% in October. The second estimate of Q3 2019 consumer spending recorded a 2.9% increase, which was the main driver in the Q3 GDP recording of 2.1%.

Personal income was flat in October. The personal savings rate was 7.8%.

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 recorded 48.1 for November, below the consensus estimate and slightly down from October’s reading. New orders also decreased to 47.2, down from last month’s reading of 49.1.

Global PMI posted a reading of 50.3 in November—a seven-month high. Output and new orders saw marginal gains, helping to move the reading above 50.0 for the first time since April. PMI readings for Greece, Columbia, and Brazil registered the strongest growth, while the U.S., China, and France also saw improvements.

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 0.4% in October. Over the last 12 months, CPI rose 1.8%. Core CPI, which excludes food and energy, reported a 0.2% increase for October. Over the last 12 months, core CPI rose 2.3%.

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 climbed 1.9% in October to a seasonally adjusted annualized rate of 5.46 million units. Overall sales are up 4.6% from a year ago.

The median existing-home price in October was $270,900, up 6.2% from October 2018. This marks 92 straight month of year-over-year gains. Unsold inventory is at about 4.3 month supply. A three to six-month supply is considered a healthy balance between supply and demand.

New home sales decreased -0.7% in October to a 738,000 annualized rate. The median sale price of new houses sold in October was $316,700. Unsold inventory is at about 5.5 month supply. Note that the new home sales report is typically very volatile and the data is frequently revised.

Since 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 12.6 on November 29, 2019, well below the historical average of around 19.2. The VIX remained very low in November as volatility stayed calm throughout the month.

Since 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 the end of November 2019 is 0.35% (3-Month LIBOR 1.91% – 3-Month Treasury Bill 1.56%). The spread decreased from last month. The current level of 0.35% is below the historical average spread of 0.57%. We are comfortable with a positive rating at this level.

Since 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.

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