Increased prevalence of unfavorable reports surfacing
The Financial Times (FT) has developed an innovative economic sentiment series called the "FT macro mood." This index, created in collaboration with experts in text analysis, provides insights into the overall economic sentiment as expressed in media reports and various other sources.
The FT macro mood is constructed using sophisticated methods for extracting data from text, including embeddings and fine-tuned large language models. These modern techniques, based on natural language processing (NLP) and machine learning, help to extract relevant information from vast amounts of data.
Since its inception, the FT macro mood series has been a valuable tool for understanding the economic climate. However, it has yet to recover from the impact of the 2007-8 global financial crisis, as indicated by the data. The average sentiment since the crisis has been far below the pre-crisis period (1982-2006).
Negative headlines tend to receive more clicks, and it seems that the FT's content has been generally negative over the last 40+ years. This negative sentiment is not unique to the FT, as there appears to be a wider negative turn in newspaper media since around 1970, possibly driven by increased media competition, as previously reported by Alphaville.
Interestingly, the FT sentiment can explain nearly 20% of the daily Vix close price, a significant correlation between the FT sentiment and Wall Street's Vix index. Furthermore, a model that includes a breakdown of topics covered in the FT improves the prediction of US CPI inflation. In fact, a simple model using FT sentiment can predict US CPI inflation over the next 12 months better than the Fed's own staff forecast and a standard benchmark model.
Journalists play a crucial role in society, providing a civic service by exposing scandals and holding the powerful accountable. The FT macro mood series underscores the importance of media in reflecting and influencing public sentiment about economic issues.
The FT macro mood is updated daily on the FT's Monetary Policy Radar data page, offering a valuable resource for those seeking to understand the economic climate as reflected in the media. Despite the challenges posed by the current economic landscape, including events such as Covid, inflation, and rising populism, the FT macro mood series continues to provide valuable insights into the economic sentiment of the times.
