August 1, 2011
Return to a Recession is a Real Risk According to Dow Jones Economic Sentiment Indicator
NEW YORK, Aug. 1, 2011 /PRNewswire/ -- As Washington focuses on the debt ceiling, there are signs that the rest of the U.S. economy is running into trouble, according to the Dow Jones Economic Sentiment Indicator. In July, the ESI dropped to 41.5 from a reading of 44 in June. The indicator has now fallen for two consecutive months for a cumulative decline of 5.1, the worst two-month drop since the fall of 2008.
"It would be easy to blame the dip in the ESI on the U.S. debt crisis, but much of the gloom stems from Main Street rather than Washington," says Dow Jones Newswires "Money Talks" columnist Alen Mattich. "The readings this summer have fallen enough that it seems to suggest a slide back into recession is a real risk."
Coverage of the need to raise the national debt ceiling was a factor in the decline, but a detailed analysis shows a substantial number of reports on problems beyond the Beltway. The proposal to close 10% of post offices, disappointing corporate earnings reports and a lagging housing market are some of the themes that contributed to the darkening mood.
A persistent theme in the July was the continuing economic toll of high oil prices. When oil prices spiked last year, coverage was in some cases favourable, portraying the rise as a symptom of global and domestic economic recovery. Now coverage of higher oil prices is much gloomier, focusing on the toll it is imposing on businesses and consumers alike.
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.
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. For more information, visit http://dowjones.com/esi.
About Dow Jones Insight
Dow Jones Insight (http://www.dowjones.com/product-djinsight.asp) 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.
About Dow Jones
Dow Jones & Company is a global provider of news and business information and a developer of technology to deliver content to consumers and organizations across multiple platforms. Dow Jones produces newspapers, newswires, Web sites, apps, newsletters, magazines, proprietary databases, conferences, radio and video. Its premier brands include The Wall Street Journal, Dow Jones Newswires, Factiva, Barron's, MarketWatch, SmartMoney and All Things D. Its information services combine technology with news and data to support business decision making. The company pioneered the first successful paid online news site and its industry leading innovation enables it to serve customers wherever they may be, via the Web, mobile devices and tablets. The Dow Jones Local Media Group publishes community newspapers, Web sites and other products in six U.S. states. Dow Jones & Company (www.dowjones.com) is a News Corporation company (NASDAQ: NWS, NWSA; ASX: NWS, NWSLV; www.newscorp.com).
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.
SOURCE Dow Jones & Company