In the Doldrums: Another Economic Indicator Heads South

Lost amidst headlines of bank nationalization, credit market woes, and a worldwide equities rout, was news that the Baltic Dry Index, an index seen as a measure of world trade flows and future economic activity, has been in freefall this week. A drop of 8% on Tuesday was bookended by drops of around 11% on both Monday and Wednesday.

According to the Guardian, the index is

"seen as a good leading indicator of future economic production levels because it charts the cost of freight movements in 26 of the world's biggest shipping lanes of "dry" materials, such as coal, iron ore and grain which feed into the production of finished goods some weeks or months ahead."

Since reaching a peak in July, the BDI has plummeted over 80%, leading to fears that demand for commodities, particularly in China, may be on the wane. This could, reports the Guardian, mean that the "great Asian miracle economy might now be coming apart at the seams, in spite of the official figures suggesting everything is still fine."

Agricultural areas throughout the United States, buoyed by recent high prices for commodities, have thus far shown economic strength in the face of increasingly difficult conditions nationwide. The good times may be, if not coming towards an end, facing some sort of moderation.

Effects of the credit crunch have already begun to show some impact on international commodities trade. Last week, Canada's Financial Post reported that grain shipments had begun to pile up in ports as international buyers found themselves unable to obtain letters of credit. In the words of one marketing expert, the situation is a "nightmare." According to experts interviewed by Bloomberg, "letters of credit and the credit lines for trade currently are frozen," and as a result, "nothing is moving". Such credit issues, in connection with weakened demand for commodities in a potential worldwide recession and a downturn in international trade, may mean that communities around the nation will soon face a more difficult economic picture.