The other Baltic {flickr}

Some suggest the best way to track the long-term economic big picture is by watching the the price of shipping dry bulk, or the Baltic Dry Index. The BDI is an index that tracks the average cost of carrying dry cargo such as iron ore, coal, finished steel, and grains. It allows one to measure the demand for raw goods which is further indicative of future industrial activity. As countries resume creating products for eventual export, they’ll need the raw materials. After those products are finished, they’ll once again ship them to where they’re needed.

Economist Susan Lee says that forward-looking :

I suggest you watch an index that will tell you when the world economies are starting to perk up and when trade conditions are really starting to ease. It’s called the Baltic Dry Index.

Essentially the Baltic Dry tracks the average daily price for shipping dry bulk like coal, iron ore, wheat and soybeans. There are three things that make it such a good leading indicator. One, the index looks at raw materials, so it captures activity at the very beginning of the production process. Two, it looks at ocean shipping, so it reveals what’s happening to international trade — the critical driver of global growth. And, three, the shipping business depends heavily on credit, so the Baltic Dry indicates whether credit is tight or loose.

Back in 2005, when the world’s economies were just fine and credit was abundant, the Baltic Dry looked like a powerhouse. But it peaked in May of 2008. And it’s been heading almost straight down ever since — losing about 90 percent of its value.

So, the BDI has nowhere to go but up. A visual is further confirmation. The verdict is still out as to how the Baltic Dry relates to crude oil or GDP.