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.