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.
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