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 November 2018

+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 took a hit in October, but domestic equities remain positive for the year. The DOW was down -5.0% in October, while the S&P 500 was down -6.8%. However, year to date through the end of October, the DOW is up 3.4% and the S&P 500 is up 3.0%.

The MSCI ACWI ex-US declined -8.1% in October. Year-to-date, through the end of October, the index is down -11.0%.

In the U.S. and around the world, stock markets were frightened in October by fears of slowing growth, trade wars, and higher interest rates. However, corporate earnings remain positive and jobs data remains solid. The back-and-forth on trade is still a negative headline risk, as well as the unknowns regarding European politics and geopolitical issues. However we are seeing the underlying strength in U.S. economic data outweigh the global headline risks. Internationally, Eurozone economic data has not been nearly as strong as in the U.S., so there is not as much underlying economic strength to outweigh trade and political concerns.

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 steadily in September to 0.3%. The first estimate for Q3 consumer spending recorded 4.0%, the strongest reading since the fourth quarter 2014, and helped drive the 3.5% Q3 GDP report.

Personal income rose 0.2% in September and the personal savings rate slipped a little from August, but still has a strong reading of 6.2%. 

Rating: Positive

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 57.7 for October, down from September’s 59.8 report. The slowdown came as new orders fell to 57.4 in October from 61.8 in September.

Global PMI posted a reading of 52.1 in October, a two-year low as rates of growth in output and new orders weakened. Although this reading is comparatively low, it still signals growth in the sector. All three sub-sectors covered by the survey continued to expand in October, led by consumer goods, which saw its PMI rise to a four-month high. The headline index has now remained above the neutral 50.0 mark for 73 consecutive months.

Rating: Neutral

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 September. Over the last 12 months, CPI reported 2.3%, slowing from August’s 2.7% increase. Core CPI in September, which excludes food and energy, remained unchanged from Augusts reading of 2.2%.

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 declined -3.4% in September, after a month of stagnation in August, to a seasonally adjusted annualized rate of 5.15 million units. Sales are now down -4.1% below a year ago.

The median home price in September was $258,100, up 4.2% from September 2017. This marks the 79th straight month of year-over-year gains. Unsold inventory is at about 4.4 month supply. A three to six-month supply is considered a healthy balance between supply and demand.

New home sales dropped -5.5% in September to a seasonally-adjusted annualized rate of 553,000 units. New home sales increased 16.8% from a year ago. Supply continued moving into the market, up 2.8% in September. Note that the new home sales report is typically very volatile and the data is frequently revised.

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 21.23 on October 31, 2018, above the historical average of around 18.5. The VIX had gradually been trading lower over the past several months since its high in February at 37.2, but the poor market performance in October caused a spike in volatility.

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:

Current spread as of November 1, 2018 is 0.31% (3-Month LIBOR 2.58% – 3-Month Treasury Bill 2.27%). The spread has increased from September and October’s spread, but remains very narrow. The current level of 0.31% is well below the historical average spread of 0.58%. We are comfortable with a positive rating at this level.


While past performance is not a guarantee of future results, the current score for the Bedel Barometer© is +3, which suggests growth in the foreseeable future, though with less certainty.