Analysts, portfolio managers and policymakers love leading indicators because of their forward looking qualities. The Eurozone leading indicator is one such metric that often gives clues to the region’s economic activity in the near future. When the leading indicator rises, it is generally positive for the shipping industry.
The Organization for Economic Cooperation and Development (OECD) publishes leading indicators that are better known and most closely studied on a global scale compared to the Conference Board’s, a U.S. equivalent1. For the latest data available, the leading index for October 2012 was -0.61% year-over-year. A year-over-year change was used instead of the monthly index because it reduces the effects of short term noises in economic activity. Contrary to what most may think, the -0.61% decline is a positive sign for the market since the prior month’s change was -0.81%. The market often moves when the situation is improving or worsening.
It is worth noting that leading indicators are primarily designed to forecast outlooks for industrial productions. This is because industrial output is often seen as more of an effective proxy to economic activity than consumption is. Additionally, while GDP is released quarterly, industrial output is reported on a monthly basis, providing investors and policymakers with more up to date information.
Speaking of industrial output, industrial production is also highly correlated with shipping. When industrial production rises, materials such as iron ore, coal and oil will be used more, which means higher trade volumes and revenues for shipping companies. These shipping companies include DryShips, Inc. (DRYS), Diana Shipping, Inc. (DSX), and Teekay Corp. (TK). The Guggenheim Shipping ETF (SEA), an ETF that generally performs similarly to the Dow Jones Global Shipping Index, should also benefit.
- Baumohl, Bernard. The Secrets of Economic Indicators: Hidden Clues to Future Economic Trends and Investment Opportunities, 2nd Edition. Pearson Prentice Hall, 2007. Print ↩