Baltic Dry isn’t a new import beer. The Baltic Dry Index is a uniquely reliable indicator of future economic activity. And right now it’s taking a dive.
The BDI is a good leading indicator for economic growth and production. After all, it doesn’t deal with container ships carrying finished goods. It deals with the precursors to production: bulk carriers carrying building materials, cement, grain, coal, and iron. Unlike stock and bond markets, the BDI “is totally devoid of speculative content,” says Howard Simons, an economist and columnist at TheStreet.com. People don’t book freighters unless they have cargo to move.
Because the supply of cargo ships is generally both tight and inelastic — it takes two years to build a new ship, and ships are too expensive to take out of circulation the way airlines park unneeded jets in the Arizona desert — marginal increases in demand can push the index higher quickly. And significant increases in demand can push the index sharply higher.
It ain’t going higher. Since June, the BDI has dropped from 11,689 to 700, an all-time low. A year ago it was 10,216.
I’m no economic guru, but that seems pretty grim.