You Can’t Gauge the Global Economy Just by Looking at Ships
The Baltic Dry Index became a prophecy of sorts amid the global financial crisis. Its predictive powers since then have been patchy.
An empty vessel.
Photographer: Qilai Shen/BloombergAmid the turmoil of the oil-price bubble and credit crunch in 2008, a few analysts and economists discovered something remarkable. An obscure shipping index compiled in the shadow of London’s “Gherkin” tower had become a sort of daily prophecy about the direction of the global economy.
The Baltic Dry Index could be used as a “Predictor of Global Stock Returns, Commodity Returns, and Global Economic Activity,” to quote the title of one 2011 academic paper. Google searches for the term rose roughly 50-fold from late 2006 to their peak in February 2009. In one highly influential paper published a month before crude oil hit its peak in July 2008, University of Michigan economist Lutz Kilian created a similar home-brew index of ocean freight costs, and argued it could be used to spot turns in the global business cycle.