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 February 2023

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+1

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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 were both down for the month. The S&P 500 was down -5.8% in December. Domestic mid and small cap equities decreased -5.4% and -6.5%, respectively. The S&P 500 is up 7.6% over the last three months and down -18.1% over the last twelve months.

The international index (MSCI ACWI ex-US) was down -0.7% in December. The index is up 14.4% over the last three months and down -15.6% over the last twelve months.

Equities continued to react to economic reports that indicated the economy might be slowing, in addition to the Fed’s hawkish comments on tackling inflation.

Negative Since June 2022

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 0.1% in November, below the consensus of 0.2%. Consumer spending can be volatile from one month to the next.

The final estimate of Q3 2022 consumer spending recorded a 2.3% increase, well above the first estimate of 1.4%.

Personal income increased 0.4% in November.

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Positive Since June 2022

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 reported 48.4 in December. This is below the 50.0 break-even point, signaling a slowdown in the manufacturing sector. This is the lowest reading since June 2020. This reading has continued to decline slowly over the past year. New orders reported 45.2, also below the 50.0 mark.

Global PMI posted a reading of 48.6 in December, a 30-month low. Output fell across the U.S., China, Euro area, and Japan.

Neutral Since August 2022

Rating: Negative

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 increased 0.1% in November. Over the last 12 months, CPI rose 7.1%. Both of these readings were below expectations and below the June peak of 9.1%. Inflation has been consistently declining over the last several months, but it is still much higher than the Fed’s 2% target. Core CPI, which excludes food and energy, increased 0.2% in November. Over the last 12 months, core CPI rose 6.0%. Both of the core readings were also below expectations.

Negative Since: June 2021

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:

Total existing home sales decreased -7.7% in November to a seasonally adjusted annual rate of 4.09 million units. Sales in total fell -35.4% from a year ago.

The median existing-home price in November was $370,700, up 3.5% from November 2021. This marks 129 straight months of year-over-year gains. Unsold inventory is at about a 3.3-month supply. A three to six-month supply is considered a healthy balance between supply and demand.

New home sales increased 5.8% in November to a seasonally adjusted annualized rate of 640,000. The median sale price of new homes sold in November was $471,200. Unsold inventory is at about 8.6-month supply. Note that the new home sales report is typically very volatile and the data is frequently revised.

Neutral Since October 2022

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 to 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 started December around 20.8 and hit a high near the middle of the month at 25.1. However, the VIX remained relatively calm throughout the month and ended the year around 21.7. This is slightly above the historical average of 19.2.

Negative Since October 2022

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 at the end of September was 0.38% (3-Month LIBOR 4.78% – 3-Month Treasury Bill 4.40%). Both indicators in the TED spread increased as the Fed has been raising interest rates. The current TED spread of 0.38% is below the historical average spread of about 0.57%.

Positive Since June 2020

Past performance is not a guarantee of future results. As of January 12, 2023 the current score for the Bedel Barometer is -1.

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