Industry Doesn’t Believe in the Recovery

A story in e-Week talks about how US industry is flush with cash, but isn’t hiring because they are unsure about the future. There are some IT jobs out there, more than there were, but the jobs that are hot are the ones that require lots of specialized experience. There’s another indicator, one of my favorites, that shows the pessimism is broader than just IT in the US. It’s called the Baltic Index, and you probably never heard of it.

The Baltic Index measures the average cost to rent supersize dry bulk cargo ships — not containerships, and not tankers, but the kind that haul ore and such. The ships are listed in different categories: PANAMAX are ships that can just barely make it through the Panama Canal, for example. This is what the index looked like last summer, with historical data going back to September of 2006.

Dry Ships Baltic Index 2006-2011

What makes this index interesting is that it’s a leading indicator. The materials carried in these ships won’t become a product for six months or more, and so the demand for them measures what production might be like that far out.

It’s the earliest copy I have, and it just barely captures the pricing before the Great Recession. Note that in 2006, a PANAMAX ship (orange line) rented for about $30K per day. Then came a period of price inflation, due primarily to speculation-driven oil prices. In 2008 the Recession hit, and the index dropped to around $500 per day, then slowly climbed back to more normal levels. Unfortunately, that hasn’t lasted:

Dry Ships Baltic Index 2007-2012

Notice how prices have been drifting down since the Autumn of 2010, and now stand at about $1000 per day. That says there’s not much demand for inputs for products to be produced six months or so from now. I suspect the problem is that no-one is sure how the European problem will work out, and that everyone is waiting to see who wins the election in November.

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