The depiction of the economy in U.S. newspapers continued to be more negative than positive in May, lengthening a long-term trend held since November 2007. In May, the Dow Jones Economic Sentiment Indicator hit 46.6, unchanged since April and more than 3 points away from the positive side of the 100-point scale.
"The story from the ESI is the same: press perceptions of the economy remain steady at an unspectacular level," says Dow Jones Newswires "Money Talks" columnist Alen Mattich.
The ESI is determined by in-depth sentiment analysis of national news coverage across 15 daily newspapers. It is reported on a scale of 0 to 100; higher numbers represent increasingly positive sentiment.
In May, the ESI’s reading was distorted by articles covering the arrest of the International Monetary Fund’s former managing director Dominique Strauss-Kahn in New York. Removing all IMF stories puts the ESI at 47.5, almost one point above April’s figure and the highest reading since January 2008.
Positive media coverage in May highlighted IPOs issued in the stock market and progress in Washington D.C. in dealing with the rising U.S. deficit.
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 newspaper articles for positive and negative sentiment about the economy. The indicator is calculated through Dow Jones Insight, a media tracking and analysis tool. The technology used for the ESI also powers Dow Jones Lexicon, a proprietary dictionary that allows traders and analysts to determine sentiment, frequency and other relevant complex patterns within news to develop predictive trading strategies.
The ESI’s back-testing to 1990 shows that indicator 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.
MORE ARTICLES ON ECONOMIC OUTLOOK