Leading indicators aren't pointing to recession, and the weak dollar is giving HP and other tech giants a lot of breathing room The Baltic Exchange Dry Index isn't something you read about every day -- in fact, most of us haven't heard of it. And it's likely that you've never heard of the Economic Cycle Research Institute. But the Baltic Index and ECRI's reports on leading economic indicators give economists an Leading indicators aren’t pointing to recession, and the weak dollar is giving HP and other tech giants a lot of breathing room The Baltic Exchange Dry Index isn’t something you read about every day — in fact, most of us haven’t heard of it. And it’s likely that you’ve never heard of the Economic Cycle Research Institute. But the Baltic Index and ECRI’s reports on leading economic indicators give economists an important view of where the economy is going. And despite lots of reason to be nervous, neither the index nor ECRI are pointing to recession. Meanwhile, the ever-weakening dollar (it sank to an all-time low against the euro this week) is pushing U.S. exports to record levels, and that’s good news for tech giants like HP which are doing more and more business abroad as the American economy slows. First the Baltic Index, or BDI. It measures the cost of shipping raw materials over key global trade routes. Because the number of ships in the world is pretty stable (it takes a long time to build one), increases in demand for their services push up the price of shipping. And because it measures the cost of shipping raw materials, as opposed to finished goods, it is a leading indicator. The good news: So far this year, it is up 143%, according to reports in The Financial Times and other places. The Exchange (which is based in London, not the Baltics) also reports that shipments out of Long Beach, Calif., one of the world’s busiest ports, were up a third in October. One reason: The weak dollar is making U.S. goods all the more attractive abroad. And that brings us to Hewlett-Packard’s report this week of fourth-quarter sales and earnings that easily beat Wall Street’s expectations. Unlike many of its competitors, HP does about two-thirds of its business outside the U.S. “This is very different from what we heard from IBM and Cisco, in particular,” said Shaw Wu, an analyst at American Technology Research. “HP continues to execute in this very tough environment. The key reason is that they’re very global.” (Wu made his remarks during an interview with The New York Times.) HP is not terribly dependent on sales to financial services companies, which are apparently cutting technology spending in the wake of the credit crunch and sub-prime mortgage debacle. Interestingly, though, CEO Mark Hurd ducked questions during a conference call about whether HP is seeing weakening demand from U.S. corporate customers. “I don’t want to be confused with an economist in any way, shape, or form,” he said during a conference call after the earnings announcement. Hurd’s not an economist, but Lakshman Achutan, who heads ECRI, is an economic analyst I’ve spoken to regularly through quite a few economic ups and downs. And his record in handicapping the economy and seeing beyond the day’s headlines is well above average. In an interview this week, Achutan said that the Weekly Leading Index shows an unmistakable weakening in the economy, but it does not yet point to a recession. Moreover, the slowing we will see when the fourth-quarter numbers come in represents a slip from a stronger-than-expected third quarter. “Slowing from 100 miles per hour is a lot different than slowing from 20 miles per hour,” he said.The weekly leading indicators include a variety of economic data, including data on housing, money supply, investor confidence, commodity prices, and more. The index peaked in early June, and then started to slip until late July when it plunged sharply. Since late August, however, the rate of decline slowed dramatically, though it is still drifting lower. It’s worth noting that the summer plunge in the index is not even close to the stunning drop we saw when the dot-com bubble burst in 2000. (The pop-up image below is a graph courtesy of ECRI via Bloomberg that shows changes in the weekly leading index over the years.) View image It’s also worth noting that the minutes of the Federal Reserve’s last meeting indicate that the government’s top economists are divided about the severity of the current downturn. I wish the news were better, but it’s not as bad as you might think. It’s going to be a wild ride through the end of the year, at least. But don’t run for the exits just yet. I welcome your comments, tips, and suggestions. Reach me at bill.snyder@sbcglobal.net Technology Industry