The Syracuse Misery Index

You hear a lot about the Dow these days. It’s the only barometer of economic health that most people know. But it’s really not a terribly great economic indicator — not only is it gamed by all sorts of interests, but it isn’t really a leading indicator. As a public service, I’m telling you about an economic index that probably will tell you what’s going to happen. It’s called the Baltic Dry Index, and isn’t much followed by mainstream financial analysts because it’s about the very “dry” subject of raw materials shipping.

Very simply, this index tracks how much ship owners can expect to command for their global shipping services for all kinds of raw commodities such as iron, copper, grains, and everything that goes into manufacturing the goods we eat and use. When the index is high, that means there are a lot of materials to be shipped – high demand for the shipping services. When the index is low, that means that there probably isn’t that much raw material floating around out there on the high seas — low demand for shipping.

What you see on the BDI today is probably not being felt in real life today, but may be felt weeks or months from now. The BDI was as high as 11,000 over the summer. Today, it stands at 666, its lowest-ever reading. If the number reaches (a theoretical) zero, that would likely mean a complete drying-up of global trade – and probably of manufacturing as well. Which would mean more job losses, and possibly more shortages of manufactured goods. Why is this happening? Economic slowdown is one, but it also has to do with the global credit crunch, which hampers the flow of the shipping trade (there is a market for some of this stuff, but credit-based transactions cannot be completed). (Here is a link to a daily report about the BDI. You can bookmark it and watch it fluctuate.)

Okay, I admit this post was mainly an excuse for me to tell folks about the BDI. But it occurs to me that maybe someone should develop an “SMI” – Syracuse Misery Index (and perhaps an opposite SJI, Syracuse Joy Index). What factors would you include? Obviously, rain, snow and temperature levels; how many points SU football/basketball gave up during its last game; job losses; but that can’t be all there is, so what else would you suggest?

7 Replies to “The Syracuse Misery Index”

  1. My personal SMI may occasionally be measured how long it takes to drive to the airport–amount of construction along 81, weather conditions, big trucks splashing mud, etc.

  2. I just want to add some perspective to your comments about the Baltic Dry Index. This is a spot market price, as such it is a measure of the demand for incremental shipping, not overall shipping. Most larger companies have long term contracts in place for shipping. The BDI only measures the demand for companies wanting additional shipping capacity.

    Second, you focus on the fact that the index has fallen from 11,000 to 666, but you don’t mention why it ran up to 11,000 in the first place. Six years ago the BDI stood at 845. The price ran up in part due to increased shipping demand, especially from China. However, the ban on single hull ships also lowered shipping supply by 5-10%, creating a big imbalance between shipping demand and available supply. With the long lead time for building new ships this created a several year situation where companies dramatically bid up shipping prices. As transportation prices are a small percentage of a products final price, companies where willing to pay more to assure they could get the raw materials they needed, and get their finished goods to market. Now we have new shipping capacity arriving in the market, and a drop in demand, which has quickly sent prices back to historic levels.

    So, while the BDI does indicate a drop in demand for shipping(it could just be an increase in supply, but there seem to be enough indications of reduced demand that I won’t make that argument), and that does reflect a drop in the economic activity behind the need for shipping, it is misleading to make statements that imply economic or shipping activity have almost ceased to exist.

    Here is an interesting site that provides a different view of the topic. Look at the website for the port in Newcastle, Australia http://www.newportcorp.com/site/index.cfm, and click on “The Port of Newcastle”, “Shipping”, “Weekly reports”. Newcastle is the main port for exporting Australian coal, primarily to China. The record for monthly coal shipments was 8.394 million tons in December, 2007. For November, 2008 they shipped 8.1 million tons. While this is a small decline, it is nothing at all like the decline that would be implied by the BDI rate.

  3. Thanks so much, Brian. What is going on with shipping is difficult to get a real handle on– have read a few things, including some on the BDI, and some on goods pile-ups at docks… All index numbers are impossible to understand unless you have a firm grasp of the underlying parameters/assumptions.

    I do like the idea of measuring happiness (as per JS21’s comment) rather than simply economic activity– no way that inefficient health care systems and too many divorces should make the US look better off… which current GDP-figuring does…. and, the DOW mostly measures animal spirits, far as I can tell, at least lately.

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