The crash of the leading indicators

Before you have a finished product you have a commodity, and before that commodity becomes a finished product it has to be shipped to market. That's why the Baltic Dry Index is a leading indicator.

The index of freight rates on international trade routes fell 38 points, or 2 percent, to 1,902 points today, according to the London-based Baltic Exchange. Today’s drop was the 31st straight decline. That’s the longest since the 34 sessions to Aug. 15, 2001, according to Baltic Exchange prices. Charter rates for all types of ships tracked by the exchange fell.
“We don’t see anything in the next two to three weeks that’s going to turn the market around,” Guy Campbell, head of dry bulk at Clarkson Plc, the world’s largest shipbroker, said by phone.

While the Baltic Dry Index hasn't fallen nearly as far as it did in 2008, it is falling faster than it did in 2008. It has collapsed by over 50% since May.

The leading index that catches even more attention is the ECRI Leading Indicators.

The ECRI weekly leading indicators have dropped to minus 7.7%. There has been no case since its existence when a recession didn't take place if this indicator fell to minus 10%. This doesn't mean that it has to fall that low, a recession is still very likely if it even gets close. Falling below zero and staying in that range for any period of time also signals a recession. In the 2007, the recession began three months after this indicator turned negative.

That was last week's news. Today the ECRI Leading Indicators dropped to -8.3%, a 44-week low.

Other leading indicators are building permits and housing starts, both of which collapsed last month.

Housing starts fell 10 percent to a 593,000 annual rate last month, the lowest level this year, from a revised 659,000 pace in April that was less than previously estimated, Commerce Department figures showed today in Washington. Building permits, a sign of future construction, unexpectedly declined to a one- year low. Single-family home starts suffered the biggest drop since 1991.

The June employment numbers showed a decline in hourly earnings and average workweek, both considered leading indicators.
Not surprisingly, consumer expectations also fell along with their paychecks.

Just 23 percent now say the economy is getting better, down from 33 percent in May...

Meanwhile the double-dip denials are getting louder and more hysterical.

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The 3D or Double Dip Denial

I don't think we are going to have a double dip and my reasoning laid out here is why.

I think we're going to get a de facto Depression. The NBER won't label depressions but by the technicals, what I see if the U.S. never recovered, if one looks at all of the indicators the NBER does, the economy never returned to pre-recession levels. So, there is no "high" to "dip from", unlike the 1980-1983 period.

So, instead of a double dip, I suspect the NBER will more the recession dates forward and that by definition would be a Depression.

Howz that one for Doom & Gloom by the numbers?

What I am about to blow my own stack over is over and over we see various people claim employment is a lagging indicator. Well, that's true, but it's also a co-incident indicator, because it has immediate impact on other aspects of the economy.

So, to me we have a jobs emergency, it's a national crisis and this government is just acting "la de da" and refusing to act on it. There are so many ways they could dig up immediate jobs and most of these don't add a dime to the deficit.

But instead they refuse to do so!

Bonddad now worshiping the yield curve

I couldn't help but looking.

Slowdown, yes; recession, no. That’s the message of the yield curve. Its track record is impeccable. It beats forecasters, econometric models, even the Fed, which seems to resist the inherent message in the spread.
For all those double-dippers still splashing around in the pool, it’s time to get out, towel off and learn to love a slow recovery.

This worship of a single indicator doesn't work for one simple reason: we've never had a ZIRP by the Fed before.
Consider the 3-month Treasury. It's yielding 0.15% right now. The reason it is yielding so little is because of the Fed holding the short end of the curve down.
For the 10-year Treasury to yield less than the 3-month would require investors to be betting on severe deflation. We would have to be looking at Great Depression style collapse for that to happen, and even then I would be skeptical.

It seems that Bonddad has doubled-down on his recovery bet. I think he's going to lose the house.

The Cherry Pick Orchard

another amusing spin example is the focus on "exports" as if the keyword DEFICIT doesn't exist.

uh, I do believe it has a 14% error rate if I recall correctly. What's a ZIRP?

Aspiring to be Kudlow or what here? His "trade" analysis alone was enough for me to put my reading and education activities elsewhere.

We have voluminous insights from people who really know what they are talking about around who of course get ignored, including some working at the Fed at some level.

I find really unique analysis and it's almost always correct, at least in everything I dig around in, on the Atlanta fed blog. Did you see their occupational sector job loss bubble graphs? They are priceless, esp. for 2001. What it shows to me is these corrupt "policy" makers offshore outsourced the U.S. economy and economic future. Those same bubbles, sinking into the pit on the Alt. Fed U.S. bubble graph are bursting up in the India, China occupational bubble graphs.


Zero Interest Rate Policy

No, I didn't see the Atlanta Fed report. Got a link?

in the must reads, 7/11, must read #4

Should I do differently those "must read" posts? I could put each one up separately as an instapopulist and just skip the "links" type of post, in order to amplify them more plus give a scan for the surfer, but then I think we need more posts as blog pieces instead of instapopulists. else, the EI posts will fall off of the Instapopulist roll and get buried.

Directly link here.

FYI Before It's News

I changed the link to the actual post and author from their site. It appears Before It's News is simply republishing people's writings, making money off of them and making sure there isn't too much link back to the site/content owner/author so they actually get some pieces of silver for their article.

Baltic still dropping

32nd straight day of decline. It has to mean that world trade is in trouble.

global shipping

I don't track this to now but the post I just put up, job double speak, has some info on how global shippers are refusing to ship U.S. exports because we're shipping low cost items as well as junk and it just doesn't pay out like imports, which are high end finished products. I don't know if this has any effect on the Baltic?

Baltic continues to drop

BDI now at its lowest levels since mid-April of 2009 (when the world economy was in a panic), and has now dropped 36 straight days, the longest streak since 1995.

flurry of economic reports today

I'm working on getting their graphs and pointing out the important parts. I just put up PPI and frankly that was a shocker. Me thinks we need to revisit the topic of deflation and what that means to real people, their meager paychecks, their SS payments, their debt plus the U.S. national debt.

I still don't see a negative GDP for Q2 2010 here at all, but the way these things are flying in as slow down, might need to revisit Q3. I personally am about ready to blow my top at this administration and Congress. What do they not get about national emergency for the U.S. workforce and what do they not get that yes, you screw the middle class you will screw the national economy. See that Time mag post on how much our government was purchased for?

Do you know how much Baltic weighs in on overall indicators? I need to get some info/research on the weighting, relative importance on some of these things. I've got a good feel for GDP but on others, I do not.

what happened to shortage in containers?

just a month earlier there was a hoopla in financial press about a SHORTAGE of shipping containers. how they (shippers) were struggling to buy whatever they could get their hands on! so i no capiche? whats going on here?

link for container "shortage"?

I personally don't recall a container shortage. Did they mean for China? That's one of the reasons for this site to exist. The financial press headlines often do not match the actual statistics.

Link about the container shortage

Here is a link for an article for the Container shortage

I am in the storage container business and the market is a mess right now because of the shortage, I've talked to veterans of the industry and they've never seen the market this bad in their 30 years in the industry. The global shipping container utilization rate is almost 99% when typically it is near 92%. There are lots of factors for this but the main issue is labor in the Chinese Shipping container factories.


This is a fine article. I

This is a fine article.

I would just point out that the Baltic Dry is a notoriously unstable index which varies dramatically with AND without general economic impetus.

IMO, the US rail traffic index is more stable and indicative of trends in this country.

U.S. railroads originated 284,716 carloads for the week ending June 26, 2010, up 11.4% compared with the same week in 2009, but down 13.2% from 2008, the Association of American Railroads (AAR) reported on July 1. Intermodal traffic totaled 227,229 trailers and containers, up 20.5% from a year ago and down only 1.1% compared with 2008. Traffic levels were essentially flat in comparison with the week ending June 19, when the railroads originated 284,913 carloads and saw intermodal volume of 227,985 trailers and containers.

Compared with the same week in 2009, container volume increased 22.1% and trailer volume rose 12.3%. Compared with the same week in 2008, container volume increased 7.7% and trailer volume dropped 32.2%.

Indicators keep dropping

The ECRI Leading Indicators is now down to -9.8%, which makes a double-dip a virtual guarantee.
Plus, Michigan Consumer Sentiment fell through the floor today, with one of its biggest single drops on record.

The government has already shot its wad on fiscal stimulus, so it can't do that again. All that is left is monetary stimulus, and that's an ongoing thing.

Also, I wonder if Bonddad and NDD can bring themselves to admit their yield curve "proof" doesn't apply in a ZIRP environment?

V is for Victory! Oh I see, they're claiming a typo now.

I was putting together a flurry of indicators I missed in the Instapopulist, but all are pointing South. I'm not surprised in the least at this.

On the technical argument, I'm placing my bets the NBER extends the current recession dates and thus it would be technically a Depression (although they would never call it as such). I believe they are letting it ride in this craps cycle dating shoot.

Well, there is no doubt they will ignore their claims like every other prediction made. Notice the great "V" is not mentioned, now it's insults and attacks over a "weak slow recovery". The predictions continually change with no mention of inaccuracy, but one thing remains constant, the personal attacks and jabs against us.

I find that amusing. There are ?? 50 major economics blogs saying about the same thing we're coming up with on this site?

NDD is coming around

I just read NDD's latest contribution, and he's finally acknowledged the possibility of a double-dip. A day late and a dollar short, but at least he isn't denying the obvious.

that's good

His employment analysis from the Great Depression is one of the most popular pieces on this site. I assuming he had a brain aneurysm to explain what happened. NDD never poo pooed EP...directly.

I guess that also leaves me odd blogger id out

For I do not believe we will have a double dip. I believe we never have come out of the recession in the first place. So I believe it will eventually be classified as a Depression, abet not as severe as the Great Depression.

Double-dip vs. Greater Depression

So I believe it will eventually be classified as a Depression, abet not as severe as the Great Depression.

I to believe that this is all part of the larger Depression. At the same time I recognize that technically someone could say we bounced in 2009.
Nevertheless, if you haven't seen this article you might want to check it out. It is downright terrifying once you realize the implications of it.

I've been collecting a number of debt-related charts and articles recently, so I think I might put together something this weekend.

Steve Keen

Yeah, I saw it. It's another piece I put in a must read links. This is really terrible. We need spending right now because it's stimulative, but they sure are not restructuring the economy for any recovery so doom probably is on the way.

You're not going to believe this, but I do, team Obama is planning on "working on social security". I said they were going to do that agenda, i.e. strip the last remaining social safety nets, during the primaries but even I did not believe it. Behold, that's the plan and they are going to screw the very people who got denied retirement due to pensions being taken away and "401ks" which are worth nothing in many cases, very same age group.

I mean every single corporate agenda, regardless if it makes any sense economically, esp. for the middle class and this is like one long continuation of George Bush, who was a continuation of Bill Clinton, at least economically.