NEW YORK – The Dow Jones Economic Sentiment Indicator (ESI) reached its highest level in a year rising to 35.5 in August, the sixth consecutive monthly increase.
The ESI’s continued improvement lends guarded support to the growing view that the U.S. economy may be moving out of recession and into a period of recovery.
“In addition to the ESI’s positive trend, we’ve seen several months of positive movement in the Leading Economic Index and industrial production which have in the past signaled a move to economic growth,” said Dow Jones Newswires ‘Money Talks’ columnist Alen Mattich.
“The continued improvement of the ESI coupled with the gains of other leading indicators is a sign that the U.S. economy continues to steer a course towards recovery.”
Mattich points out, however, that it would be premature to call an end to the recession. “It will be months before the National Bureau of Economic Research determines the timing of the recession’s trough and a return to growth.
“We continue to wait for the ESI to reach the upper 30s before anticipating an end to recession and thereafter for it to reach the upper 40s before sentiment suggests the recovery is sustainable,” Mattich said.
The Dow Jones Economic Sentiment Indicator aims to predict the health of the U.S. economy by analyzing the coverage of 15 major daily newspapers in the U.S.
The ESI’s back-testing to 1990 shows that the ESI clearly highlighted the risk that the U.S. economy was sliding into recession in 2001 and 2008 and suggests the indicator can help predict economic turning points as much as seven months in advance of other indicators.
Unlike some other indicators where 50 is a clear break-point between recession and recovery, the ESI needs to be read with reference to longer trends.
Based on the ESI’s performance since 1990, previous recoveries have been marked by substantial month-to-month gains, with a jump of three points seeming to be a sign of significant improvement. A drop below 50 marks the point at which there is a clear risk of a slowdown.
More information about the Economic Sentiment Indicator and its development is available at http://solutions.dowjones.com/esi.
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