By Kenneth Norris, Deputy Editor, IFPTA Journal
LONDON,
July 1, 2009 (Viewpoint) -
Returning to the US a few weeks ago, after being in Shanghai attending the RISI Asian Pulp and Paper Outlook Conference, I was honestly surprised at the polar differences in economic outlook between East and West. From the minute I hit the ground in New York, the myriad of opinions thrown at me on the current state of the global economy - and their magnitude and intensity - was staggering and bewildering, and horribly depressing.
Why is it that there is still no growing consensus on the economy? From green shoots to W's, from opinions that we've finally hit the bottom to those who claim this is just a lull in the storm. It's enough to make anyone go nuts.
But instead of focusing on why there is such limited disagreement in Asia on their outlook - nearly all forecasts call for Asia to keep growing, albeit at a less than withering pace, and for the region to be the first to emerge from the global recession - I kept wondering why no one seems to have the pulse on where the rest of the world is headed.
Case in point: The Organization for Economic Cooperation and Development (OECD) released their latest forecast last week, where they upgraded their previous gloomy forecast to something almost rosy, given the current climate; most notably for the US and Europe. However, instead of seeing this as promising news, the OECD was nearly vilified in some corners for ignoring the facts and putting on rose-colored glasses. Now, if we can't trust a group like the OECD for results, who do you call?
Forget about the news reports
It goes without saying that most of the major media outlets routinely focus on the wrong parts of the economy. In their defense, though, unemployment and inflation sells. Still, it's hard not to get wrapped up in the hype, especially when it fills the airwaves, and the Internet, and our mobile phones.
Another case in point: Nearly everyone, except your friendly neighborhood day trader that is, will agree that the Dow Jones Industrial Average (DJIA) is one of the worst indicators of where the economy is going. Nevertheless, it's always there, tick, tick, ticking away, minute-by-minute.
But as a quantitative number, it's erratic and often neurotic. And as for a qualitative assessment, its movement is anyone's guess - and it often is. There's a lot to be said for its historical perspective though, but as a beacon for future prospects, it's a complete failure.
There is an argument to be made that some components of the stock market are worth watching closely. The S&P500 seems a much more stable marker of how things are going, and investor confidence can sometimes feel like a magic lantern.
In favor of transports
Maybe not surprisingly, there's also a strong argument to be made that the Dow Jones Transport Average (DJTA or the Dow Jones Transports) is a much more informative indicator than the equally singularly focused DJIA or NASDAQ.
Consider who's a part of the DJTA, especially for forest products: railroads like CSX, Burlington Northern and Union Pacific; logistics providers such as JB Hunt, YRC Worldwide (formerly Yellow Roadway) and C. H. Robinson Worldwide; marine transporters Overseas Shipping Group and Alexander & Baldwin.
In its favor, the DJTA is the oldest of the stock indices, first developed by Charles Dow in 1884. On the whole, it's far less sporadic than it's brother, the DJIA; and because it isn't splashed across the screen every 20 seconds, its movements and reactions can be said to be a more authentic measure of where investors are looking and moving.
The drawbacks of the DJTA can also work in its favor. Because the economy has become more technology and service-based, the DJTA hasn't been subject to the devil of its own making, but relies heavily on the actual results and forecasts of the transport companies it represents; as well as the larger transport infrastructure of the economy.
And if the insatiable allure of the DJIA is too much, especially for historical contexts, consider that the DJTA has followed nearly the same profile as the DJIA for decades, but without the wide swings and gyrations that only a trader could love.
Getting moving again
Granted, looking at the DJTA is an understandably high-level macro-view of the economy. Nothing can replace the expert price data and forecasts that only industry-specific analysts can bring to the table. But transport can have more foretelling than you might imagine.
Final case in point: There is a general agreement that consumers must start consuming again for the economy to begin any long-term recovery. But many leading economic indicators, pointing to consumer spending, are misleading now, if simply because of high inventories and artificially low prices to eliminate stock. Even though consumers might be buying, until the manufacturers and producers start running at full-steam again, we're all going nowhere fast.
This is when transports become significant. Many transporters and logistics providers are now reporting the same bottoming-out other analysts have mentioned. They are, so to speak, dusting off the wheels and preparing for a much-improved fall and winter.
When inventories finally start running low, and orders pick up because demand improves, transport will start steaming again. And it's safe to say that those who work in, and invest in, transport are watching for that movement very carefully. When that starts to happen, my bet is that we are finally going to be out of the woods.
