What the Uncommon Economic Indicators Tell Us About the Economy

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When gauging the health of the economy, some people look at housing starts while others examine consumer confidence data, wholesale prices or new orders. But according to this story in yesterday’s Wall Street Journal, some analysts gauge the strength of the economy by examining rhodium prices, diesel fuel and railroad traffic. According to the article, because these commodities do not trade on any exchange, and therefore aren’t subject to speculative feeding frenzies (our words, not theirs) they tell a truer story about economic demand than say, copper. And what do the gauges tell us? Well, rhodium, up 60% since the start of last year indicates an uptick in automotive demand (and as we go to press December auto sales numbers will come out, likely higher than expected). We have also reported that analysts believe auto sales will jump in 2010. Rail traffic has also inched up in December as has the prices for other key raw materials such as iron ore and coking coal that we have been reporting.

In addition, other commodities such as oil have also increased (though oil is obviously subject to speculation). So what other metrics make for good proxies of economic activity? Here are a few oldies but goodies:

1. Steel scrap this was Alan Greenspan’s favorite leading economic indicator. Though prices had dipped in Q4, the trend line appears to be moving in the right direction (up)

2. Baltic Dry Index – dipped in November but is comparatively on the rise as this chart shows:

3. Temporary labor movements (number of new hires) followed by rates

It’s also easy to get caught up in a euphoric frenzy. Anecdotally, the little guy on the street still thinks that the 2010 will not bring much positive economic activity. And certainly the commercial construction sector remains weak but don’t let me rain on the parade.

–Lisa Reisman

Comment (1)

  1. Smack MacDougal says:

    Prices reflect supply and demand for individual things and thus prices never stand as a good gauge of an economy.

    However, changes in output measures, e.g., tonnage steel, kilowatt hours billed, give better indicator.

    Also, looking at the delta between public sector and private sector employment shall show you if a foundation exists for future growth.

    The public sector includes all government jobs, any contractor earning 51% of revenues from taxpayers money (e.g., Medicaid, Medicare, Pell Grants).

    Another crucial indicator is the change in per capita Disposable Personal Income for ages 18 to 59 relative to output measures.

    Nearly all Academia and Government economists suffer from false beliefs when it comes to measuring the economy. Using dollars sales tells you nothing. Without context, you cannot know truth.

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