The Baltic Dry Index (BDI) is calculated each day by the Baltic Exchange in London. The index assesses the price of moving raw materials like coal, iron ore and grain by sea.
The index measures the demand for shipping versus the supply of dry bulk carriers, reports Wikipedia.
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 California desert.
Marginal changes in demand quickly move the index. So the index indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers.
Dry bulk consists of materials used to produce concrete, electricity, steel and food. This index is an efficient economic indicator of future economic growth and production.
The BDI is a leading economic indicator because it predicts future economic activity.
Here's some good news. The Baltic Dry Index reveals a nice rebound in demand over the past month.
Economists have illustrated the rather close correlation of the BDI with stock market performance. If it is an efficient, leading indicator of future economic activity...then we could be seeing early signs of recovery from this recession.
That would support the view of economist Brian Wesbury (see my L U V article) of a V-shaped recession with recovery later this year.
No comments:
Post a Comment