The Most Over-Rated Economic Indicator Strikes Again

The Baltic Dry Index, which measures shipping rates, has gotten a lot of attention lately because it’s plunging.

Now the first thing to bear in mind is that people only seem to talk about the Baltic Dry when it’s tanking. Nobody talks about it when it’s rising.

Second, while it’s frequently described as a useful economic indicator, it just isn’t.

Former Business Insider writer Vincent Fernando explained its flaws here, though the key thing you need to know is that in addition to reflecting demand, it also is influenced jus as much by supply of ships.

And that’s what seems to be the case right now. Calculated Risk links to a pair of articles regarding both the increase in available ships and also the flooding in Australia which has reduced sea volumes.

Of course, this is a problem for shippers, and it’s also possible that a decline in the index could come from reduced demand.

But there’s no indication of that at all. Check out the trade activity in China. Or check out rail activity. Clearly the lack of demand for shipping goods is not the story.


Photo: Bloomberg

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