Today we’ll be taking a look at a couple of little-used and little-understood indices to give us a sense of where industries are going and where we might be headed in 2015.
One index comes from zerohedge.com, a financial industry analyst website, with information on the sales data for Caterpillar Corporation (CAT).
CAT’s equipment can be found in industries responsible for all the heavy construction we see, including motive power (mostly through diesel engines) that’s integral to many of our commercial and industrial processes.
According to ZeroHedge, CAT’s retail sales data now shows an unprecedented 28 months of declining global retail sales. The month of March saw 16 percent year-over-year collapse in China, an extra 20 percent plunge in 2014 and 24 percent the year before that.
Latin America is down 34 percent year-over-year and shows a 21 percent drop the year before.
This is important because CAT’s equipment leads construction activity. Chinese markets as we know, are propped up by the biggest real estate bubble the world has ever seen. So this may be a sign that the economic party driven by construction and real estate may be coming to an end.
Another index that I really think is worth looking at is called the Baltic Dry Index (BDI). Published by the London-based Baltic Exchange, the index measures the price of moving major raw materials by sea.
There are 23 major shipping routes handling a broad range of commodities like coal, iron ore and grain. The BDI is a pretty good indicator of future manufacturing demand because those bulk commodities are the raw material inputs for things like concrete, steel, food, the things that consumers need on a daily basis.
The BDI’s numbers look troubling for 2015, but like all indices the BDI is not perfect. A significant increase in shipping capacity through new ship construction, for example could distort the numbers.
Over time however the cost of moving large quantities of essential raw materials has to point to a bigger economic trend and like CAT, it looks like economic conditions in China may set the tone.
So will China’s massive housing bubble create a global collapse? That’s hard to predict but firms that have a big manufacturing presence in China, or are counting on Chinese demand to boost the flat profitability in domestic markets have got to be worried.
Maybe we should be too.