Dow Jones Economic Sentiment Indicator Up Only Slightly to 38.7; Suggests Recovery Could Be Losing Momentum

The media's coverage of mixed economic news led to a marginal rise in the Dow Jones Economic Sentiment Indicator (ESI) in December. The ESI rose to 38.7, up only minimally from 38.3 in November. This slight rise is the ESI's third weakest performance in a year and much less convincing than increases in October and November.

While the ESI ends the year significantly higher than the 22.4 level it registered in January at the start of the year, December's weaker performance means the indicator failed to break back above the level it held before the collapse of Lehman Brothers in September 2008.

The Dow Jones Economic Sentiment Indicator aims to predict the health of the U.S. economy by analyzing the broad coverage of 15 major daily newspapers in the U.S. During December, media coverage that included references to better-than-feared holiday retail sales was outweighed by articles referencing mixed or negative economic news including continuing double-digit unemployment and slower economic growth.

"The ESI's significantly slower rate of improvement in December suggests the U.S.'s economic rebound could be starting to level off and that non-farm payrolls neither advanced nor declined by much during the month," Dow Jones Newswires 'Money Talks' columnist Alen Mattich said.

The ESI represents one of the most comprehensive and far-reaching examinations of media coverage as an economic indicator. 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.

The Dow Jones Economic Sentiment Indicator is calculated using a proprietary algorithm through Dow Jones Insight, a media tracking and analysis tool.

Dow Jones Insight uses innovative text mining and analytic technologies to help organizations keep informed about relevant issues, news, conversations and trends emerging in mainstream, Web and social media. Dow Jones Insight's global content collection includes more than 25,000 news and information sources as well as blogs, message boards, and posts from YouTube and Twitter.

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The Dow Jones Economic Sentiment Indicator is provided for analysis purposes only and Dow Jones makes no representation that the indicator is a definitive predictor of sentiment or the health of the U.S. economy. This report does not in any way reflect an opinion of Dow Jones regarding the U.S. economy or the suitability of any investments.