Baltic Jan12.pngShipping markets are usually a good leading indicator of future economic activity.

They have their own supply/demand balances, of course. Not every uptrend or downtrend can be taken too seriously.

But the Baltic Dry Index of ocean freight costs has done a good job for the blog in the past.

So one cannot simply dismiss its message today.

It is an excellent proxy for world trade and activity in China, as it covers the heavy bulk products (iron ore, grains, coal). It was strong through 2007/8, before collapsing. Last March, it was the first indicator to signal the start of China’s slowdown.

As the chart shows, it has now been falling steadily for over a month. Day by day, every day. So far, it has fallen for 28 days in a row. This is quite remarkable behaviour for any market.

It is now back at the levels seen in December 2008.

Optimists who believe that China is about to see a renewed boom will continue to ignore the Index. They will argue its decline simply reflects the fact that too many ships were ordered at the height of the boom.

But this seems too simplistic a response. The recent price weakness is far too dramatic to be simply reflecting this already widely known fact. The blog suspects that the Index is also reflecting a serious slowdown in world trade. It is yet another sign that a new recession is probably underway.

UPDATE. The Index today fell 2.6% today, and is now at a 25 year low.