Another Sign Of Economic Headwinds

We are told the economy is in "recovery". The financial media wants to tell us how well things are going. A few months ago, the United States cut back on the unemployment stimulus because the economy was staging a strong recovery. Jobs are plentiful so it is time for people to head back to work.

Unfortunately, like most narratives, that one is completely false. There are signs everywhere that the economy is going to do what it typically does: head for a double dip. We keep repeating the same process so it is no surprise.

One area that we are told is on fire is demand. Global trade is trying to catch up to obliterated supply chains. After all, there are shipping lined up back to China outside Los Angeles ports waiting to unload.

How can anyone believe there are economic headwinds?

What Does Shipping Tell Us?

We are told there is so much demand that shippers cant find enough containers to move all the stuff. The goods coming out of China and other exporters is rushing towards American shops. Retailers are ordering because demand is through the roof. It is almost a "send us all you got" scenario.

If this is truly the case, how do we explain this?

bdi.png

This is the Baltic Dry Index. What is that?

According to Investopedia:

The Baltic Exchange calculates the index by assessing multiple shipping rates across more than 20 routes for each of the BDI component vessels. Analyzing multiple geographic shipping paths for each index gives depth to the index's composite measurement. Members contact dry bulk shippers worldwide to gather their prices and they then calculate an average.1 The Baltic Exchange issues the BDI daily.

A change in the Baltic Dry Index can give investors insight into global supply and demand trends. Many consider a rising or contracting index to be a leading indicator of future economic growth. It's based on raw materials because the demand for them portends the future. These materials are bought to construct and sustain buildings and infrastructure, not at times when buyers have either an excess of materials or are no longer constructing buildings or manufacturing products.

It does not take a great deal of insight to conclude that chart is not optimistic when looking at what this monitors.

There is more bad news.

The chart isn't up to date. Today we saw another down day.

bdi.png

During the first week in October, the index was at 5680. It is now down to 2430, in about 5 weeks. That is quite a crash.

To view it on a longer term, here is what we see.

bdi.png

I drew a line to reflect about where the latest price is. This shows we are now back into the upper end of the long term range that we mostly operate at.

The question is that if the economy is on fire and demand is so strong, why are we see shipping costs around the world plummet? It makes you wonder what is truly going on.

China's Dilemma

It seems that the situation in China should not be overlooked. Their Q3 GDP came in rather weak, 4.9% as compared to 7.9% the quarter before. This is something people better get use to if the forecasts are right.

Beijing’s squeeze on the real estate sector will linger into next year and beyond, a development many hadn’t seen coming that has now prompted banks like Goldman Sachs Group Inc., Nomura Holdings Inc. and Barclays Plc to cut their growth forecasts in 2022 to below 5%.

Source

This is going to send commodity prices reeling if it comes to pass. China is the major consumer of most commodities, especially those related to construction. Countries like Australia are going to see their economic output harmed due to the fact that China is such a big consumer of their raw materials.

Then again, the action in Iron Ore is telling about the situation in China.

ironore.png

This is reflected in China's consumption.

China's iron ore imports fell 4.2% in October for a second straight month of decline, customs data showed on Sunday, as steel output curbs undermine demand for the raw material.

The world's top iron ore consumer imported 91.61 million tonnes of iron ore last month, down from 95.61 million in September, data from the General Administration of Customs showed.

Source

Perhaps this helps to explain some of why global shipping rates are dropping. If China is not importing as much raw materials, then they likely will not be exporting as much.

This is certainly going to take its toll on the economy.


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Bang, I did it again... I just rehived your post!
Week 80 of my contest just started...you can now check the winners of the previous week!
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I have been car shopping, as for demand.. they are selling cars that are expected to arrive in January at this time.

lol, and used cars with 20k miles are selling for what the new ones used to go for, so there is demand at least on some things. I never trust the narratives anyway!

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There is still a supply shortage in automobiles. A few of the manufacturers are just ramping up production this month.

Frame this comment and come back in June of next year and let's see how it looks. I hypothesize there are going to be a lot of car deals available at that time.

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Well isn't it due to the real estate market being hit by Evergrande and manufacturing leaving China? I would have to say the real estate is probably one the largest factors affecting things since we all know about all the construction they do even if nobody will ever use it.

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Well the shipping routes are more than just from China. And if manufacturing is moving to other countries, they still have to ship it to where it is consumed like the United States. So in that instance, the shift will cause the origin but should not affect overall demand.

Evergrande could be playing havoc with the Chinese economy. Yet they will still want to produce. Hence it tends to be a demand issue if things are not being shipped (unless the energy crisis is causing a major drop in manufacturing production around the world).

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Again, I'm just not "buying" it (see what I did there?).

I know our perspective/opinion differs a bit on this, but I just don't think people are buying "things" at a rate to reflect what the economic numbers say. Now, they may be buying experiences, but that's a whole different kettle of fish.

This was already in the "writing on the wall" when we closed our art gallery some years back... people were still buying art, but they were buying digital art which isn't physically manufactured and doesn't actually exist in the physical space of shipping, manufacturing plants, and people going to work at "jobs."

Doesn't mean there isn't commerce in a financial sense... just means that someone is spending $200 on an NFT, rather than on an art print that requires paper, ink, wood for a frame, glass to cover the art, a framer to assemble it all, wire and nails to hang it, and so on.

=^..^=

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Ah interesting. You are bringing a couple points up.

The first is shifts in demand due to technology. That is certainly in place on a longer frame. Few take the time to look at this. However, that should be a change in demand, not so much a decrease.

Secondly you touch upon the experience and how people are doing things. Again technology can alter this drastically.

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Does a dip in shipping rate translate into an increase in shipping prices? I realized economic issues in America and China have a ripple effect on the rest of the world. Especially major importers like Nigeria.

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The Baltic Dry Index does monitor shipping prices. When I say "rates", I mean the prices charged.

So yes there will be ripple effects if this continues. Shipping prices falling is a good things for the products being moved since it is less costly. However, we see an issue from the economic perspective is things are slowing, which I believe they are.

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I don't know this will affect Nigeria economy but I think it will have a major effect because 75% percent of everything we is from China.

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I was under the impression that the items were stacking up in the ports because there is a shortage of dock workers and truck drivers to move them out. Not solely because demand is up. I do think demand is up, but like I said, I just thought there was more to the story.

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Things are stacking up at the docks because of what you said. However, why would there be a decline in shipping rates if the global economy is rebounding and countries are in need of getting products?

This says more about demand, in my view, than anything else. If demand was there, plants would be churning out products as fast as possible.

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