The BDI is one of the purest leading indicators of economic activity. It measures the demand to move raw materials and precursors to production, as well as the supply of ships available to move this cargo. Consumer spending and other economic indicators are typically backward looking, meaning they examine what has already occurred. The BDI offers as close to a real time glimpse at global raw material and infrastructure demand as any indicator. 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 the cargo.
Below is the most recent chart of the Baltic Dry Index. The BDI has been declining since June of this year, just as many economists believe a global economic recovery is underway. While the latest decline may be a pause in shipping activity before countries such as China begin restocking raw materials for the end of the year, the BDI should be monitored as it is a leading indicator of economic activity. If the BDI continues to decline in the coming weeks and months, it could be an indication that economic growth forecasts may be too optimistic.
