A Reliable Global Economic Indicator – the Baltic Dry Index – Appears to Have Found Bottom And Is Trending Up

In the ocean of bad economic news, there may be a glimmer of hope on the horizon.

On American Public Media’s Marketplace last week, economist Susan Lee suggested a better way of tracking the economy than, certainly, individual 401k accounts, and even the Conference Board’s indices — which she says have incorrectly predicted five recessions since 1959:

SUSAN LEE: I suggest you watch an index that will tell you when the world economies are starting to perk up and when trade conditions are really starting to ease. It’s called the Baltic Dry Index.

Essentially the Baltic Dry tracks the average daily price for shipping dry bulk like coal, iron ore, wheat and soybeans. There are three things that make it such a good leading indicator. One, the index looks at raw materials, so it captures activity at the very beginning of the production process. Two, it looks at ocean shipping, so it reveals what’s happening to international trade — the critical driver of global growth. And, three, the shipping business depends heavily on credit, so the Baltic Dry indicates whether credit is tight or loose.

Back in 2005, when the world’s economies were just fine and credit was abundant, the Baltic Dry looked like a powerhouse. But it peaked in May of 2008. And it’s been heading almost straight down ever since — losing about 90 percent of its value.

Since January, the Baltic Dry Index, which peaked at about 12,000 in May 2008, has drifted upward slightly, rising to around 2,000.

2 Comments

  • Pingback: One Penny Sheet » A Reliable Global Economic Indicator - the Baltic Dry Index - Appears to Have Found Bottom And Is Trending Up

  • Olga
    March 17, 2009 - 5:24 am | Permalink

    Break out the champagne, it’s only 80% down on last year!

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