index etf credit spread iron condor option advisory options trading system service using puts and calls, spreads and condors trader strategies

Dow Jones Media Economic Sentiment Indicator (ESI)


The Dow Jones Media Economic Sentiment Indicator (ESI) is a monthly assessment of the "tone" of content in 15 metropolitan dailies.  (an example of "tone" would be scanning for the word "recession")  The ESI is a simple barometer based on a scale of zero to 100—the higher the number, the more upbeat the news and, by extension, the stronger the economy.  Dow Jones back-tested their media sentiment indicator to 1990 and found that it could signal critical turning points in the economy, sometimes a bit earlier than other economic measures.  Below is the ESI from January 1990 through March 2009.  We can see that the ESI did a good job of giving an early predictor for the 2001 and 2008 recessions. 

The ESI team also claims that this indicator can give an earlier signal to a possible recession as compared to the Consumer Confidence Index and the University of Michigan's Consumer Sentiment indicator.  Per the chart below, it does look like the ESI did give a signal earlier as compared to the other sentiment indicators.

And below is the ESI from Aug 2008 through Aug 2009.  We can see that media sentiment has been gradually climbing, telling us that the economy is improving.