Smart Economy

When will the recession end? Part 35 Drivers of new growth?

Last night I attended a talk in Toronto by Jeff Rubin, former CIBC World Markets economist turned author. Rubin was confidently predicting triple digit oil prices again in 6-12 months, but failed to explain his rational and logic behind the jump.

I just don't see it--he says he bases his forecasts on 3d world growth-Brazil, India andn China.

But I just can't see Indian or Chinese middle class consumers making up for lost USA GDP growth by buying their own kitchy consumer products that used to fill Walmart stores in rurual America....they are far more sophisticated shoppers and frankly wouldn't buy their own junk.

Rubin's 6-12 month prediction for triple digit oil is even less probable considering that we have anywhere from 12 to 18 debt bubbles that have yet to burst floating around the globe, not just in the USA but in emerging economies. His logic was that soaring triple digit oil prices drove us into recession, so even if oil prices did spike again, then why would  it not  send us into a double dip recession again?

The ugly inconvenient truth that politicians don't want to talk about is that we have too much excess capacity in too many conventional business sectors-such as banks, services, commercial or residential real estate in North America or in several manufacturing sectors in Asia--which could take a decade to "deleverage" if not more. That loss has yet to be replaced by equivalent job growth in nanotech, biotech, cleantech, alt energytech and smarttech-and it's unlikley that they would be hiring the same people that have been recently layed off, who don't have the requisite PhD and related job experience.

The only wild card that could drive oil prices to triple digits in six months is if all 165 countries unilaterally impose a "carbon tax" but I just don't see that happening at or after Copenhagen...unless Rubin knows something that he's not publicly disclosing..Could all politicians be secretly ganging up on all its citizens with a global carbon surcharge? It makes more sense to do it with water vs carbon, since those shortages are more imminant. However if polticians are clever, they would legislate that the water intake values be downstream of the water/pollution outake valves in a stream--get it? Self regulation.

The two cartoons on the left from  this week's New Yorker magazine express the situation perfectly-without any further comments.

Walter Derzko

Early warning signals, climate change, ice ages and tipping points

Regular Smart Economy blog readers will remember the theory that I posted a while back-geologically speaking, earth should be in an ice age now--i.e Toronto should be covered by about a Km of ice, if it wasn't for all the human produced CO2 and global warming largely due to of 8,000 years of agriculture, such as rice farming and deforestation.

Now comes a paper in New Scientist that provides evidence that the transition to a previous mini ice age about 13,000 years ago (from a warm sunny  climate to a landscape of ice covered glaciers) took an incredible short period of time (6 months to a year) and not the decade or decades that we previously assumed.

New Scientist writes:

"JUST months - that's how long it took for Europe to be engulfed by an ice age. The scenario, which comes straight out of Hollywood blockbuster The Day After Tomorrow, was revealed by the most precise record of the climate from palaeohistory ever generated.Around 12,800 years ago the northern hemisphere was hit by the Younger Dryas mini ice age, or "Big Freeze". It was triggered by the slowdown of the Gulf Stream, led to the decline of the Clovis culture in North America, and lasted around 1300 years.

Until now, it was thought that the mini ice age took a decade or so to take hold, on the evidence provided by Greenland ice cores. Not so, say William Patterson of the University of Saskatchewan in Saskatoon, Canada, and his colleagues.The group studied a mud core from an ancient lake, Lough Monreagh, in western Ireland. Using a scalpel they sliced off layers 0.5 to 1 millimetre thick, each representing up to three months of time. No other measurements from the period have approached this level of detail.

 Carbon isotopes in each slice revealed how productive the lake was and oxygen isotopes gave a picture of temperature and rainfall. They show that at the start of the Big Freeze, temperatures plummeted and lake productivity stopped within months, or a year at most.  

[...]

The mud slices from the end of the Big Freeze show that it took around two centuries for the lake and climate to recover.

 Patterson says that sudden climate switches like the Big Freeze are far from unusual in the geological record.

The Younger Dryas was brought about when a glacial lake covering most of north-west Canada burst its banks and poured into the North Atlantic and Arctic Oceans. The huge flood diluted the salinity-driven North Atlantic Ocean mega-currents, including the Gulf Stream, and stalled it.

Two studies published in 2006 show that the same thing happened again 8200 years ago, when the Northern hemisphere went through another cold spell.

Some climate scientists have suggested that the Greenland ice sheet could have the same effect if it suddenly melts through climate change (see Hansen comment below), but the 2007 report of the Intergovernmental Panel on Climate Change (IPCC) concluded this was unlikely to happen this century....[the truth is that they just don't know for sure--Walter Derzko]

Seems almost anti-intuitive; Here's the likley sequence:

Global warming ( natural or man-made), ->Greenland ice sheet melting, -> change in ocean salinity; -> Atlantic Gulf stream stalling; -> mini ice age..

This shows how we can get stuck in dictotomous thinking...the debate is  not whether or not we have global warming or global cooling, or if it is man-made or caused by nature,  but the recognition that we can have both at the same time -that's what happens at tipping points or critical transitions !!--Walter Derzko

Another significant advance comes out of this research..and this is really cool-a weather report from millions of years ago:

"Patterson's team have now set their sights on even more precise records of historical climate. They have built a robot able to shave 0.05 micrometre slivers along the growth lines of fossilised clam shells, giving a resolution of less than a day. "We can get you mid-July temperatures from 400 million years ago," he says."

Climate scientist James Hansen, director of NASA's Goddard Institute for Space Studies in New York, in Newsweek interview  (http://www.newsweek.com/id/224178 ) said last week:

“The Greenland ice sheet had been losing between 150 and 200 cubic kilometers a year in 2002, and now is losing almost 300 cubic kilometers a year.”  

But Hanen doesn't say when we will reach the tipping point. How much fresh water is needed to dilute ocean salinity and disrupt the North Atlantic current and tip into an ice age? Well we just  don’t know for sure—all of it is pure guesswork.  or to support some political agenda --Walter Derzko

 

 

Hanson adds: “Antarctica had been losing less than 100 cubic kilometers a year, and is now losing more than 150, so it seems like we're heading into a period of much more rapid ice sheet loss. Also, in the arctic we've lost 40 percent of the sea ice in the warm season, and that will soon be 100 percent. Mountain glaciers are retreating rapidly  and could be gone in 50 years. (Recently,  our mainstream climate modelers said this would take a century or more --100 years, but it's happening right now—Walter Derzko)

 

That's why it's important to continue to do R&D work on early warning signals for critical transitions.

A paper titled -Early warning signals for critical transitions, in the Sept 13 issue of Nature states:

"Complex adaptive dynamic systems (such as ecosystems, financial markets, and climate ) can have tipping points (or critical transitions,) at which point a sudden shift to a contrasting dynamical regime may occur. Although predicting such critical points before they are reached is exrtemely difficult, work in different scientific fields is now suggesting the existance of generic early-warning signals that may indicate for a wide class of systems if a critical threshold is approaching."

Walter Derzko

When will the recession end? Part 33 Société Générale warns clients of Global Economic Collapse scenario

Politicians of all stripes, central bankers and economists employed by stock brokerage firms are all cheering us up-claiming (more like wishing)  that things are getting better on the economic front, yet behind the scenes out of public view, bankers and hedge fund managers are in fact,getting more concerned. ( ..shades of warnings that we saw in 2006 on the Smart Economy blog about the pending US housing collapse and the imploding financial banking system.)

 

The latest to go public with warnings to its customers is the French bank Société Générale who has advised wealthy clients to be ready for a possible "global economic collapse" over the next two years, according to The Telegraph in the UK. They should know since they have been around the recession/depression block several times since their startup in 1863.  In a 68-page report titled "Worst-Case Debt Scenario," SocGen explains that the rescue packages over the past year have merely transferred private liabilities onto government shoulders, creating a fresh set of problems. Debt levels, public or private, are too high as a share of GDP. The deleveraging process will take years to undo the debt problem.

 

SocGen says that under the worst bear-case scenario, the dollar would continue to decline and global equities would retest the March lows.  Property prices would slide again and oil prices would fall back to $50 in 2010. Public debt would explode within two years, with worldwide state debt reaching $45 trillion. Further, the aging population will make it harder to erode debt through growth. As for the U.S., it could take nine years to reduce debt/income ratios to the safe levels of the 1980s.

Full story  here

 

Have you adjusted your business strategy playbook for this contingency? Where you shocked by the financial crisis and did you miss the opportunity windows the first time around in 2007-2008? Do you know how to mitigate the looming threats and seize these new once-in-a-lifetime opportunities again?

 

What could trigger this collapse? It could be a number of things such as a combination of various debt bubbles (18 at last count ) which we have discussed in length before in this blog. One growing possibility  is a country defaulting on its soveriegn debt. This is not unusual and not really out of the ordinary. We  see one or two countries declaring bankrupcy every decade, --remember Russia, or Argentina in the 1908's etc? Well the global banking system can handle a rescue of one or two countries at a time. But, what if this time around we had a cascading failure of a dozen or so failed states like dominoes all collapsing at once? The global economic and financial system is not set up to handle this disaster wild card.

 

Who could that be on that failed states list?

 

The  Top 10 Safest Sovereign Debt List (based on Credit Default Swaps thiis week ) includes Australia,  New Zealand, Belgium, Norway, France, Germany,  the Netherlands, Finland, the U.S., Denmark 

 

Countries with the highest perceived default risk include Argentina, Venezuela, Latvia, Iceland, Lithuania, Kazakhstan, Lebanon, Ukraine and Russia,   See Bloomberg...

 

Wild Card-Dubai (UPDATE Bloomberg Nov 26, 2009) or another oil/gas petro states (such as Russia) may default due to falling commodity prices and growing debt.

 

From Oct 2008.....The creditworthiness of at least 20 countries around the world has more than halved in the last six months as the global credit crisis has deepened. There are growing fears that  other countries such as Pakistan, Iceland, three Baltic states -Estonia, Lithuania, and Latvia, Hungary, Bulgaria, Romania, Serbia, Sweden, Ukraine, Russia, Greece, Italy, (and others in the Eurozone), Turkey, Kazakhstan, Vietnam, South Korea, Venezuela, Mexico, Bolivia and Argentina could all slide into a downward spiral towards bankruptcy..

 

...as Harvard historian Niall Ferguson warns today in a story in the Globe and Mail (There will be Blood Part 2) .."we are now in uncharted waters."

 

Walter Derzko 

When will the recession end? Part 31 US housing still in trouble

Housing Prices May Fall Further

A number of factors suggest housing prices could drop another 10%.

read the full story:

http://www.forbes.com/2009/10/26/housing-prices-case-shiller-business-oxford.html?partner=alerts

..and dropping more then 10%...Detroit Attempts to Auction 9,000 Properties for as Little as $500; 80% Had No Bids  (it begs the question-how much is a house worth that no one wants to buy?)

Detroit house auction flops for urban wasteland

After five hours of calling out a drumbeat of "no bid" for properties listed in an auction book as thick as a city phone directory, the energy of the county auctioneer began to flag.

"OK," he said. "We only have 300 more pages to go."

Full story here http://www.reuters.com/article/gc03/idUSTRE59O17F20091026

Walter Derzko

Foresight Course: Beyond ‘Business as Usual’ ; Manchester, 29 June - 3 July 2009

Foresight: Beyond ‘Business as Usual’ 
A Course for Sponsors and Practitioners of Foresight 

Foresight Course 2009
Manchester, 29 June - 3 July 2009

The current financial turmoil is not a surprise: would the application of foresight have helped to minimise its effects? Can foresight provide navigation through these turbulent times into a new era beyond 'business as usual'?  The Manchester Institute of Innovation Research (MIoIR - formerly PREST)'s Eleventh Annual foresight training course will provide a concentrated and intensive, practically-orientated learning experience to prepare participants for the use of foresight to anticipate change to a new era. Participants will learn how to recognise and interpret possible future changes
involving social, technological, economic, ecological, political and human values and their interdependencies.

The course is aimed at people whose present or likely future position as:

• a sponsor of foresight projects;
• a foresight practitioner;
• an entrepreneur;
• a senior manager or company director; will enable them to affect the future of business, government or Non-Governmental
Organisations.

The course has a strong emphasis on the practical use of foresight. There will be parallel streams of lectures and practical work that enable participants to experience the relevance and the realities of foresight activity. The course is residential and is held in Manchester. We can extend its reach to participants in other parts of the world by video-streaming the course  sessions over the Internet and by providing electronic teaching resources.  The course draws upon MIoIR's extensive experience
of organising, consulting, researching and teaching/training in foresight activities across Europe, Latin America, Africa and the Far East. Direct assistance has been given to more than a dozen countries' national Foresight exercises. In research and training MIoIR has a continuing close co-operation with the EC and UNIDO.  

Facilitating foresight activities in public and private organisations is also a continuing feature of the Institutes work. The Institute's unique position in foresight activity has resulted in wide international participation in the course by people from: Canada, the Caribbean, the Czech Republic, Denmark, Finland, Hungary, Indonesia, Iran, Ireland, Latin America, Luxembourg, Malaysia, Malta, The Netherlands, Norway, Portugal, the Russian Federation, South Africa, South Korea, Spain, Sweden, Thailand, Turkey, the UK and many other countries.

For Further Information please contact
Lisa Gledhill (Course Administrator)
Manchester Institute of Innovation Research
MBS Harold Hankins
The University of Manchester
Email: lisa.gledhill@mbs.ac.uk

Or vist our website at http://www.mbs.ac.uk/research/engineeringpolicy/courses/foresight.aspx

Please note:- Deadline for applications is Monday 26th June 2009

We look forward to hearing from you. Please feel free to forward this flyer to colleagues who may have an interested in this course.

Kind regards,
Foresight Course Organisers
If you would prefer not to receive future e-mails regarding our Foresight Course, please send a short email to
lisa.gledhill@mbs.ac.uk and we will remove your name from our mailing list. Thank you.

Mrs Lisa Gledhill
PA to Professor Luke Georghiou
Research Support Officer - MIoIR
Manchester Institute of Innovation Research
MBS Harold Hankins Building
Manchester Business School
The University of Manchester
Oxford Road
Manchester, M13 9PL

Tel: +44 161 275 5921
Fax: +44 161 275 0923
e-mail: Lisa.Gledhill@manchester.ac.uk

When will the recession end? Part 27 The Sun could create a double dip depression

New Solar Cycle 24 Prediction: Fewer Sunspots, But Severe Mass Coronal Ejection (MCE) Activity possible.

 

In the past, human populations have survived 7 climate change-related mass extinction events...James Lovelock reminds us...but are we more vulnerable now and less resilient as a society?

 

Now privately, some scientists are quietly predicting two imminant wild card possibilities-a mini ice age, that could punctuate global warming,  if sun spots do not pick up in the next solar spot cycle and the distinct possibility of severe solar storms. At the extreme, both events could cause billions of deaths in a worst case scenario that we looked at last month.

 

Publically, an  international panel of experts has released a new prediction for the next solar cycle, stating that Solar Cycle 24 will peak in May 2013with a below-average number of sunspots. Led by the National Oceanic and Atmospheric Administration (NOAA) and sponsored by NASA, the panel includes a dozen members from nine different government and academic institutions. Their forecast sets the stage for at least another year of mostly quiet conditions before solar activity resumes in earnest [..they hope].

 

 

This plot of sunspot numbers shows the measured peak of the last solar cycle (Solar Cycle 23) in blue and the predicted peak of the next solar cycle (24) in red. Credit: NOAA/Space Weather Prediction Center.

 

"If our prediction is correct, Solar Cycle24 will have a peak sunspot number of 90, the lowest of any cycle since 1928 when Solar Cycle 16 peaked at 78," says panel chairman Doug Biesecker of the NOAA Space Prediction Center, Boulder, Colo.

 It is tempting to describe such a cycle as "weak" or "mild," but that could give the wrong impression. "Even a below-average cycle is capable of producing severe space weather,"says Biesecker. "The great geomagnetic storm of 1859, for instance, occurred during a solar cycle of about the same size we’re predicting for 2013."

The 1859 storm -- named the "Carrington Event" after astronomer Richard Carrington who witnessed the instigating solar flare -- electrified transmission cables, set fires in telegraph offices, and produced Northern Lights so bright that people could read newspapers by their red and green glow. A recent report by the National Academy of Sciences found that if a similar storm occurred today, it could cause $1 to 2 trillion in damages to society’s high-tech infrastructure and require four to ten years for complete recovery. For comparison, Hurricane Katrina caused $80 to 125 billion in damage.

 

 

The latest forecast revises a prediction issued in 2007, when a sharply divided panel believed solar minimum would come in March 2008 and would be followed by either a strong solar maximum in 2011 or a weak solar maximum in 2012. Competing models of the solar cycle produced different forecasts, and researchers were eager for the sun to reveal which was correct.

"It turns out that none of the models were really correct,"says Dean Pesnell of the Goddard Space Flight Center, Greenbelt, Md. NASA’s lead representative on the panel. "The sun is behaving in an unexpected and very interesting way."

Yearly-averaged sunspot numbers from 1610 to 2000. Researchers believe upcoming Solar Cycle 24 will be similar to the cycle that peaked in 1928, marked in red. Credit: NASA/MSFC

Astronomers first noted the solar cycle in the mid-1800s. Graphs of sunspot numbers resemble a roller coaster, going up and down with an approximately 11-year period. Predicting the peaks and valleys has proven troublesome because cycles vary in length from 9 to 14 years. Some peaks are high, others low. The valleys are usually brief, lasting only a couple of years, but sometimes they stretch much longer. In the 17th century, the sun plunged into a 70-year period of spotless quiet known as the Maunder Minimum (mini ice age) that still baffles scientists.

At a recent climate change symposium at Monash University in Australia, David Archibald, an expert in solar cycles stated:

“You haven’t seen any sign of the end of Solar Cycle 23 yet and the cooling over Solar
Cycle 24 as a consequence may be as much as 2.8 degrees centigrade. We are due for a de Vries cycle cooling event every two hundred and ten years, and actually even a Bond event because the last one of those was in the Dark Ages. And severe cooling over the next twenty years is now a certainty.” 

Right now, the solar cycle is in a valley--the deepest of the past century. In 2008 and 2009, the sun set Space Age records for low sunspotcounts, weak solar wind, and low solar irradiance. The sun has gone more than two years without a significant solar flare.

"In our professional careers, we’ve never seen anything quite like it," says Pesnell. "Solar minimum has lasted far beyond what we predicted in 2007."

 

 

In recent months, however, the sun has begun to show signs of life. Small sunspots and "proto-sunspots" are popping up with increasing frequency. Enormous currents of plasma on the sun’s surface ("zonal flows") are gaining strength and slowly drifting toward the sun’s equator. Radio astronomers have detected a tiny but significant uptick in solar radio emissions. All these things are precursors of an awakening Solar Cycle 24 and form the basis for the panel’s new, almost unanimous forecast.

 

 

According to the forecast, the sun should remain generally calm for at least another year. From a research point of view, that’s good news because solar minimum has proven to be more interesting than anyone imagined. Low solar activity has a profound effect on Earth’s atmosphere, allowing it to cool and contract. Space junk accumulates in Earth orbit because there is less aerodynamic drag. The becalmed solar wind whips up fewer magnetic storms around Earth’s poles. Cosmic rays that are normally pushed back by solar wind instead intrude on the near-Earth environment. There are other side-effects, too, that can be studied only so long as the sun remains quiet.

 

Meanwhile, the sun pays little heed to human committees. There could be more surprises, panelists acknowledge, and more revisions to the forecast.

"Go ahead and mark your calendar for May 2013," says Pesnell. "But use a pencil."

Source: Marshall Space Flight Center

Walter Derzko

When will the recession / depression end ? Part 25 New Financial sector Business Models or New Creative Workarounds?

I listened to US president Obama last Wednesday on the White House lawn, just before AIG’s CEO Liddy testified before the American congress on AIG’s bonuses. The significant point that Obama made at the end of his speech, was a fundamental change or shift to the status quo. Coincidentally or not, most mainstream newspaper reports missed this key idea and quote.

“People are rightly outrages about these particular [AIG] bonuses. But just as outrageous is the culture that these bonuses are a symptom of., that have existed for far too long. A situation where excess greed, excess compensation, excess risk-taking have all made us vulnerable and left us holding the bank. And  one of the message that I want to send is as we  get out of this crisis, as we work towards getting ourselves out of recession, I hope that Wall Street and the marketplace don't think that we can return to business as usual. The business models that created a lot of paper wealth but not real wealth in this country and have now resulted in crisis can't be the model for economic growth going forward." said Obama.

The New Yorker magazine featured this cartoon (on the right) earlier this month (March 9, 2009) , which is a more likely scenario for the financial sector….One business person says to the other….These new regulations will fundamentally change the way we get around them…

 

Walter Derzko;

Author of the soon-to-be-released book: Hard Times Golden Opportunities.. about opportunity recognition in a recession/ depression features 45 opportunity scenarios.

The Opportunity Clinic-28 Tactics for managing your Business in a Recession; Part 15 of 28 Drop problem-solving and adopt opportunity surfing

Why problem-solving, Total Quality Management (TQM), Continuous Improvement (CI), Value Network Analysis (VNA) etc is not good enough in a recession…..you  need to be totally focused on designing and /or finding novel  opportunities. These tools have their place, but it's usually in the upswing part of the business cycle to improve efficiencies of existing operations, but not now.

Many companies are still applying the pre-recession, boom-time mentality to today’s totally changed and novel business environment. Driven by existing business models, mindsets and existing ongoing relationships with  consultants, experts, suppliers and vendors, who are desperately trying to maintain their sales numbers and quotas, companies are continuing to do more of the same…what seemed to worked for them in good  times..lets' work in the same box. What we need is not "out of the box thinking" [I hate that expressionm becuase it shows that you don't understand cognition and how the brain patterns information], but to design brand new "boxes".  

 

The recession is not a problem to be solved, it’s a crisis to be avoided. And you  can only do that in one way. NOW, you need to be totally opportunity-focused and opportunity-receptive and less problem-focused and preoccupied with incremental change. Radical ideas and concepts, (and not accruemental solutions to old problems, unless they lead to novel opportunity spaces) are in order, along with resulting new business models (which we often forget to explore and redesign ), that will help companies thrive and not just survive in a recession.

 

See the cartoon in this week's New Yorker....We're still the same great company we've always been, only we've ceased to exist.  I bet they were great problem-solvers at the tactical, operational level, but poor opportunity surfers at the strategic level.

 

Walter Derzko

Smart Economy,

Toronto;

Author of the soon-to-be-released book: Hard Times Golden Opportunities.. about opportunity recognition in a recession/ depression features 45 opportunity scenarios.

 

When will the recession / depression end? Part 24 Wanted -a new economic driver

This week's Newsweek features a cover story with Uncle Sam urging you to stop saving and to start spending...in other words do what got you into trouble in the first place..spend or go into debt for the sake of the economy. It's not likely to happen soon.

In a recently published book, called "The Difference: How Anyone Can Prosper in Even the Toughest Times." by Jean Chatzky, the results of a 2008 Harris Interactive poll/ survey on income was pubished.

• 3% in the USA are indepently wealthy (usually bigger savers, as a rule)
• 27% in the USA are comfortably wealthy (recently earned money and wealth, and tend to save more then spend)
• 54% in the USA live pay check to pay check (driving most retail spending, the classic consumer)
• 15% going deeper into debt

These are 2008 numbers, so that the stats today are likely much worse.

So if ordinary Americans aren't going to spend their way out of this recession / depression. then who will? Business ? No liquidity yet. It may just take another country, if not another coninent to take over the "consumer" moniker from the USA.

Walter Derzko, Smart Economy, Toronto

Author of the soon-to-be-released book: Hard Times Golden Opportunities.. about opportunity recognition in a recession/ depression features 45 opportunity scenarios.

When will the recession / depression end? Part 22 Why we are likely to see a protracted L-shaped or double dip W-Shaped Recession?

Collapsed container traffic  and falling electricity demand

 

 

GDP growth or collapse is a poor early warning indicator for the economy. Figures are historic -they are released several months (usually 3 months) after the fact and the are then usually revised. As politicians are fond of saying, we've seen a global symmetric  (I'd argue.. asymmetric) collapse in GDP.

 

Here are the recently released GDP numbers for the 4th quarter of 2008.

 

Canada (-3.4%)

The EU (-5.9%)

The USA (-6.2%)

Japan (-12.7%)

 

Everyone is expecting even worse numbers in Q1 2009.

 

One proxy indicator that I follow is global trade. Back in 2006 and 2007 I was  looking for early signals/signs of impending collapse and now I’m tracking trade to determine if the economy will be in a protracted holding pattern (like the lost decade in the 1990’s in Japan, although it should be called the lost 2 decades) or will we see some resemblence of any recovery of international trade any time soon?

 

Bulk goods and container traffic is a good leading 6 month proxy for the economy. Manufacturers order raw materials in anticipation of manufacturing growth. In America, the container traffic in Long Beach California (the busiest port in the USA)  totally collapsed in 2007, long before there were any signs that the economy had peaked. Container traffic, dry and wet bulk goods traffic and shipping rates have been down and flat ever since-at historic low levels. If you use these indicators, there is ABSOLUTELY NO RECOVERY  in sight for 2009. The Baltic Dry Index (BDI) is showing some signs of life, but it's a type #1 error, also known in academics as a false positive. Suppliers are using some creaive accounting by attempting to take their goods "off their books" shifting them into the F.O.B catagory, but these raw materials, assembled cars and even oil supplies are just sitting inside container ships in ports, awaiting for commodity prices to increase. (hat tip to Zavis Zeman for alerting us to this tactic)

Power consumption is another good indicator to watch that signals the health of the economy. (the same is equally true for industrial use of coal, gas and oil, if you can find the data.)

 

Historically, electricity consumption and GDP growth are closely coupled, although there is still debate in the academic literature on what causes what. Does electricity use drive GDP growth or the other way around.Energy conservation efforts are starting to confound the data too.  When I can find it, I use monthly and annual power consumption data as a proxy indicator for economic recovery. The logic is simple. If you are not running a second or third shift, or if you have closed down your factory, then energy use will drop long before we see any GDP changes in government statistics. Likewise, on the way up, energy consumption should be flat and then start to slowly rise before we see any effects in GDP numbers.

China and India have become the world's manufacturers, so their health is a proxy indicator for global economic health. Both China and Indiahave reported drastic energy consumption drops in their industrial sectors. Starting in late 2007 and right through 2008,

China reported a drop in consumption, although relative year-over-year, power consumption was positive, still growing but at a much slower decelerated pace. As the global financial crisis began to take a toll on the real economy, power demand plummeted in China, as enterprises shut down or cut back working hours in response to moribund business orders.

"Power consumption in China grew 5.23 percent in 2008, 9.57 percentage points lower than a year ago and the slowest in eight years, according to Chinese data. The slowing demand was mainly contributed by the industrial sector.  About 3.43 trillion kilowatt-hours of electricity was used by the industry last year, up 3.83 percent from a year earlier, slower than the overall social power consumption growth rate for the first time.  Electricity used by the service industry and the rural and urban residents continued rapid growth, as the group was less affected by the financial crisis."

In India, power consumption grew 13.28 % in 2007 (a combination of industrial use, consumer household use, and village electrification) and dropped off the cliff by 16.91 percent in 2008, worse then in China.

 

Walter Derzko

Author of the soon-to-be-released book: Hard Times Golden Opportunities.. about opportunity recognition in a recession/ depression features 45 opportunity scenarios.

Related Recession / Depression Posts

When will the recession / depression end? Part 21 Darker days ahead , but not for all

When will the recession / depression end? Part 20 The Dog that Didn't Bark; Economists say don't pay attention to us

When will the recession / depression end? Part 19 Put Infrastructure Where it's Needed; Ontario on the Move

When will the recession/ depression end? Part 18 Hormones and Boom and Bust Cycles

When will the recession / depression end ? Part 17 Recap from the World Economic Forum in Davos

When will the recession end? Part 16 It's all over, well sort of.

When will the recession end? Part 15 Year-end predictions for 2009 starting to come true

When will the recession end? Part 14 Four options for America's race to the bottom

When will the recession end? Part 13 Thirteen economic questions that economists can't answer

When will the recession end? Part 12 Bad times are good times for startups

When will the recession end? Part 11 Bank of Canada optimism

When will the recession end? Part 10, The Conformity Trap or Don't count on your economist for advise

When will the recession end? Part 9 Humor will signal recession /depression bottom

When will the recession end? Part 8 Lessons Learned from the last Post 9/11 recession; designing brilliant winning business models

When will the recession end? Part 7 False signals of recovery

When will this recession end? Part 6 The USA Paradox; Cheer vs Fear vs Transformation

When will the recession end? Part 5 Stop Auto Industry Bailouts, start buying Electric

When will the recession end? Part 4 The double dip housing crash in the USA

When will the recession end? Part 3 The coming collapse of the American Middle Class into an Underclass

When will this recession end ? Part 2 Do you listen to the Optimists or the Pessimists in 2009?

When will this recession end?

82 Signposts to the current Recession Depression Summary from 2008

© 2005-2009

Walter Derzko -"Changing the world, one idea at a time"©

Expert, Consultant and Keynote Speaker on Emerging Smart Technologies, Innovation, Strategic Foresight, Business Development, Lateral Creative Thinking and author of an upcoming book on the Smart Economy "

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• ".....Strategy without action is a day-dream; action without strategy is a nightmare"-old Japanese proverb
• ".......Ours is the age that is proud of machines that think and suspicious of men who try to." -- H. Mumford Jones
• ".......Without changing our patterns of thought, we will not be able to solve the problems we created with our current pattern of thought."  --A. Einstein
• ".......Change is difficult, but complacency and stagnation are surefire showstoppers..." --Walter Derzko

• ".......Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it's the only thing that ever has."  -- Margaret Mead

• ".......Small minds discuss people; Average minds discuss events; Great minds discuss ideas; --Anon

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