Frequently Asked Question about RavenPack's C-Level Economic Sentiment Indicator

September 4, 2023

An overview of the economic sentiment indicator and its use of Natural Language Processing to provide insights into the U.S. economic cycle.

What is RavenPack's C-Level Economic Sentiment Indicator

RavenPack's C-Level Economic Sentiment Indicator is a real-time economic sentiment indicator that utilizes Natural Language Processing (NLP) to consolidate corporate executives' perspectives from company transcripts into a single, actionable indicator. It offers insights into the U.S. economic business cycle, aiding strategic decision-making and enhancing economic forecasting.

What is an Economic Sentiment Indicator?

An Economic Sentiment Indicator is a quantitative measure that gauges the overall sentiment or outlook of individuals, businesses, or experts regarding the economy's current and future conditions. It reflects collective perceptions and sentiments, providing insights into economic trends and potential regime shifts in business cycles.

How does the indicator work?

The indicator is based on a multi-step process to distill corporate executives' views shared during transcripts into an economic sentiment indicator:

  • Content Collection: Earnings call transcripts and business updates from publicly listed companies mentioning the U.S. economy are analyzed;
  • Information Extraction: Specific event categories with a U.S. macroeconomic focus are identified, such as consumer confidence, employment, and economic prospects;
  • Analytics Enrichment: Sentiment analysis techniques compute scores based on the positive or negative impact of each event on the U.S. economy;
  • Signal Construction: Sentiment scores are aggregated and smoothed using exponential moving averages to reflect current economic sentiment;
  • Indicator Composition: The indicator values' evolution over the past year categorizes the business cycles into expansion, slowdown, contraction, or recovery phases.
How often is the indicator updated?

The indicator is updated on a daily basis, reflecting the latest insights from earnings releases and business updates. This frequent updating provides an up-to-date perspective on the U.S. economic business cycle.

How accurately is the indicator tracking regime shifts?

The indicator aggregates corporate executives' views on the U.S. economy from quarterly transcripts, providing insight into the economic business cycle's current and future prospects. By consolidating these views into a singular indicator, the indicator enhances the detection of regime shifts in the U.S. economic business cycle. The indicator has demonstrated predictive ability over a 20-year test, accurately detecting shifts in U.S. Growth Domestic Product upshifts and downshifts. This accuracy enhances its value as an early indicator of economic cycles.

How can the indicator impact economic analysis and decision-making?

The indicator can aid economic analysis and decision-making mainly by providing:

  • A timely economic assessment: updated daily, the indicator offers an up-to-date view of the U.S. business cycle, acting as a real-time nowcast of the economy's current state.
  • An accurate future outlook: by identifying inflection points, the indicator serves as an early warning system for economic regime changes, providing a precise forecast of the U.S. economy's future state.
How does the indicator benefit investors?

The indicator benefits quantitative and discretionary investors by:

  • Assessing the U.S. economy today: updated daily, the indicator incorporates every earnings release and business update, acting as a real-time nowcast view of the U.S. business cycle;
  • Predicting future economic outlook: the indicator identifies inflection points as they occur, acting as an early warning for regime changes and offering a more accurate future assessment of the U.S. economy;
  • Boosting business cycle-driven strategies: timely assessment of the business cycle's current state improves returns for rotation strategies between sectors and assets, timing the relative risk premia.
How can I access the indicator?

You can request access to insights here .

Is the indicator only applicable to the U.S. economy?

The indicator's primary objective is to offer insights into the economic business cycles of the United States. Beyond its application in the U.S. economy, RavenPack has also adapted the methodology for Europe as well. This showcases the indicator's adaptability in gathering valuable insights from diverse markets and regions.

How does the indicator compare to traditional economic indicators?

The indicator offers a unique perspective by consolidating executives' insights from earnings calls and business updates, providing a real-time and comprehensive assessment of the US economic business cycle. This innovative approach distinguishes the indicator from traditional macroeconomic indicators, which are often lagging.

Can the indicator be used for global economic analysis?

As of now, the indicator is designed to focus on the U.S. economic business cycle, which is widely recognized as a reliable indicator for the state of the global economy. It extracts and aggregates information about the US economy from publicly listed companies' earnings calls and updates, providing valuable insights that can help inform assessments of not only the U.S. economic health but also the broader international economic landscape.

How can the indicator be incorporated into investment strategies?

The indicator provides valuable insights into the current and future state of the US economic business cycle. This information can guide asset allocation decisions, sector rotation strategies, and overall investment positioning.

The indicator is delivered with comprehensive package of data, including:

  • Date of the signal
  • Sentiment score
  • The model's assessment of the current Business cycle phase : EXPANSION, RECOVERY, SLOWDOWN or CONTRACTION.

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