I’m not sure about the media shorthand today, that the stock market is falling on Friday’s dismal employment report. But there is another indicator, which many people in this port city have never heard of, that also turned in a rotten performance — and this might indeed give a few investors pause.
The Baltic Dry Index fell 11.4 percent to 1,512 on Friday, it’s worst percentage drop on record. In absolute terms, the 194-point drop was the worst in four-and-a-half years. Not only that, but the index was at 2,113 the previous week. This is better than the trough following the Great Recession (676), but still…
The Baltic Dry Index does not rate the quality of my martinis, but measures the price of moving raw materials in ships around the world. As such, it is one of the best measures of world trade and demand. The Baltic Exchange in London Compiles the index, which is considered an excellent leading indicator and largely immune to the noise of speculation.
The Harpex, compiled by Harper Petersen and Co., looks at container volumes (and it has also been falling). It is another part of the trade-and-shipping puzzle, but the containers we see incoming at the ports of Seattle and Tacoma carry mostly finished goods. The Baltic is more forward-looking, tracking the materials needed to make the finished goods.
To be sure, there are some proximate reasons behind Friday’s big drop. Colombia is tightening its environmental rules for the shipment of coal. Shipping also slows around the Chinese New Year. But Europe is far from healed and fears continue about the economy in China, whose demand has been the biggest driver of the Baltic.
Nobody knows what drives the psychology of market actors. But with the Dow and S&P ending 2013 after impressive runs, investors are on the lookout for any sign that it’s time to pause and take profits. The Baltic might be one.
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Today’s Econ Haiku:
Suntory, Jim Beam
Globalization of booze
No new jobs to toast