The C-Level Economic Sentiment Indicator aggregates the views of corporate executives about the current and future prospects of the US economy.
Publicly listed companies schedule quarterly earnings calls with analysts. During these calls, executives often convey not only their perspective on the company's future prospects, but their outlook on the economic business cycle at a sector level and at a macro level.The Economic Sentiment Indicator aggregates these views into a singular indicator which improves the timely detection of shifts in the US economic business cycle.
The value and evolution of the indicator can help quantitative and discretionary investors:
Updated daily, the indicator takes into account every earnings release to update its view of the economy. With up to 6 weeks of earnings season every quarter, the indicator effectively acts as a nowcast view of the US business cycle.
By detecting inflection points as they occur, the indicator acts as an early warning of regime changes and delivers a more accurate assessment of the future state of the US economy.
A timely assessment of the current state of the business cycle can improve the returns of rotation strategies — between sectors for equities, and cross asset allocations between equities and bonds.
To visualize the relevancy of the indicator as an economic cycle early indicator, we compare the evolution of GDP of first releases at release dates (in red) with the indicator value (in blue), and the determination of the stage of the business cycle (background):
The economic sentiment indicator is the outcome of a multi-step process to turn individual transcripts into a macro-level business cycle indicator:
RavenPack analyzes the transcripts of earnings calls and business updates from listed companies to identify events mentioned by executives that are relevant to the US economy.
The search specifically focuses on a subset of event categories, including consumer confidence, retail and vehicle sales, employment, non-farm payrolls and jobless claims, builders confidence, building permits and home sales, factory orders, and industrial production. Additional filters are applied to ensure a US macro focus.
For each event identified, RavenPack uses sentiment analysis approaches to compute a score by matching stories usually categorized by financial experts as having a positive or negative financial or economic impact.
Sentiment scores are then aggregated and further smoothed with exponential moving averages to give more weight to recent views.
Finally, the evolution of the indicator is reviewed against its values over the past year to determine a business cycle phase between expansion, slowdown, contraction, and recovery.
By submitting this form, you agree to RavenPack's terms of service and privacy policy.
Please use your business email. If you don't have one, please email us at info@ravenpack.com.
Your request has been transmitted. One of our team members will follow up shortly.