The FINANCIAL -- NEW YORK, August 31, 2011 – In August, federal spending issues and a
ratings downgrade took its toll on economic sentiment, according to the
Dow Jones Economic Sentiment Indicator.
The indicator fell for the third straight month to 41.4 from 41.5 in July.
"The warning lights are flashing but the index is not quite calling recession, merely a very subdued state of sentiment about the economy,” says Dow Jones Newswires "Money Talks" columnist Alen Mattich.
Coverage of the U.S. budget woes, including the debate to raise the debt ceiling and the downgrade of Treasury debt played a significant role in dragging the indicator down. As coverage of these issues eased toward the end of the month, however, the indicator did not bounce back.
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.
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