"Overall, the ESI has been flat during recent months. This likely reflects the failure of a significant pickup in underlying employment trends and suggests that while the U.S. economy is no longer in recession, its recovery is subdued," Dow Jones Newswires "Money Talks" Columnist Alen Mattich said. "The modest rise of the Dow Jones ESI in May is largely due to a reversal of April's slight downward distortion caused by coverage of the Congressional inquiry into Goldman Sachs."
The rise in the ESI comes as U.S. consumers' feelings about the economy are improving. In May, the Conference Board's Consumer Confidence Index registered its highest level since March 2008 while the University of Michigan/Reuters Consumer Sentiment Index showed a modest increase from April to May.
Positive consumer trends come in spite of a slight rise in the national unemployment rate in April. Non-farm payroll employment, however, showed strong growth in May, likely driven by government hiring of temporary census workers.
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. Using a proprietary algorithm and derived data technology, the ESI examines every article in each of the newspapers for positive and negative sentiment about the economy. This is the same technology that powers Dow Jones Lexicon, a proprietary dictionary that allows traders, quantitative analysts and asset managers to analyze sentiment, frequency and other relevant complex patterns within news to develop predictive trading strategies.
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.
