I don’t put a lot of faith into watching economic indicators. They seem to tell you more what has happened than what’s going to happen.
On the other hand, I do watch a couple specific industry indicators that do, in general, give me a flavor of what may be going on economically.
For instance, the price of copper is an interesting indication of worldwide demand for basic materials. Copper goes into so many things that watching copper prices gives me an interesting view into overall economic growth. Copper prices peaked in late August and have been holding relatively steady below that peak.
I also watch the price of oil and natural gas. Oil and gas are also fundamental inputs to many types of production, so watching their prices is also informative. Oil prices, which reflect global demand, peaked in early August and have been trending down. In contrast, U.S. natural gas prices, which reflect local demand, bottomed in late August and have been trending up.
The Baltic dry index, which reflects worldwide dry bulk shipping rates, bottomed in late September and have since climbed over 20%. This indicator lets me know how much shippers are charging to move large amount of dry bulk materials, like wheat or iron ore. When shippers are charging higher rates, worldwide demand is up.
Each week, the Association of American Railroads reports rail traffic for the U.S. and Canada. This indicator shows how many rail cars of containers, coal, bulk materials, etc. are moving around North America each week. This indicator recently peaked in early September and has been trending down over the last 4 weeks.
Add it all up, and what do you get? A mixed picture.
Copper prices are down only slightly. That could be due to higher copper production, lower demand, or some combination. It’s not a very bullish sign.
Oil prices are down, too, and this reflects global demand for a fundamental input to everything. This is also a bearish sign.
Natural gas is climbing again, which seems to be bullish for U.S. demand, but it could also reflect the huge slowdown in natural gas production that has occurred over the last year.
The Baltic dry index is up, which seems bullish for global demand. It could also reflect that global shippers are on the ropes with high debt loads.
Railroad traffic is down in the U.S., which seems a bit bearish, but seasonal factors may be impacting the numbers and traffic isn’t down by a large amount.
Do you see why watching economic indicators can be problematic. There are no obvious blinking lights and ringing bells. That’s part of the reason why economic forecasters and market strategists have such a lousy record of predicting even the direction, much less the magnitude, of markets.
One of my favorite jokes is that market strategists (who forecast market direction) are like diapers; they need frequent changing and for the same reason.
It looks like global demand may be doing better than U.S. demand. But, then again, maybe not.
That’s why the smartest thing to do is buy great companies at good prices or good companies at great prices and just ride the market up and down. It works.
Market and economic forecasting? Not so much.
Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.