Key economic indicator plunges 93% since June 2008!
NEW YORK - December 28, 2008 - The Baltic Dry Index is a daily average of prices to ship raw materials. It represents the cost paid by an end user to have a shipping company transport raw materials across seas on the Baltic Exchange. The global marketplace for brokering shipping contracts has plunged 93% since June of this year.
The BDI is one of the purest leading indicators of economic activity. It measures the demand to move raw materials and precursors to production. Consumer spending and other economic indicators are backward looking, meaning they examine what has already occurred. The BDI offers a real time glimpse at global raw material and infrastructure demand. This could also be gleaned from looking at commodity prices, but there are substitution effects and futures contracts that make it difficult to interpret the impact of commodity price fluctuations.
Unlike stock and commodities markets, the Baltic Dry Index is totally devoid of speculative players. The trading is limited only to the member companies, and the only relevant parties securing contracts are those who have actual cargo to move and those who have the ships to move it.
Ed. Note: Consider the following: Raw materials are not being shipped. This means metal, lumber, grain, etc. Without the raw materials, factories will not be able to make finished goods. This means no factory jobs and no goods for store shelves. No goods mean nothing to transport. Nothing to transport means no trucking and rail shipments. No shipments mean transport companies go bankrupt. This means there may be no one left to ship vital supplies like food, medicine, and gasoline.