Does Weak Air Freight Demand Suggest A Slowdown In Asia?

I don't usually cover air freight indicators, but I came across a surprising statement by the International Air Transport Association (IATA). Every month the trade group issues a report covering international passenger traffic and air freight demand. The good news was that passenger traffic increased 2.1% month over month in September. However, the part that caught my eye was the disclosure that air freight (a leading economic indicator) declined 2.7% compared to August (seasonally adjusted). The report noted that this was the second consecutive month on month decline for air freight, and the number is down 6% since the peak in May 2010. The decrease was blamed on weak consumer and business confidence and the fact that inventory re-stocking has run its course. Without final demand, there is nothing left to pick up the slack, which has resulted in a contraction in air freight. The head of IATA Giovanni Bisignani said "the freight numbers are worrying....  the accelerating decline of air freight, including in Asia, is an early indicator of some turbulence ahead.”

Of course, a few months of weakness does not indicate a future recession, but it is worth keeping your eye on. Asia (led by China) has been the real powerhouse of growth for the world economy over the last 2 years, so it is important to look for any signs of a potential slowing in the region.

Further evidence of a slowdown in China is provided by Ambrose Evans-Pritchard who included two very revealing charts in his last article. The first chart shows Chinese orders of semi-manufactures from Taiwan. Pritchard noted:
“The indicator – which tends to anticipate China’s overall import growth quite accurately by about two months – has been decelerating for five consecutive months, from close to 60pc (y-on-y) in March to just 8.8pc in August. The product mix shows a sharp decline in China’s orders for electronics and IT products as well as other light manufacturing items such as precision instruments, clocks, and watches.”

click charts for larger image

















The second chart shows world steel production along with Chinese steel production through August 2010. You can see how much it has fallen. Current weakness in the steel market can be discerned from looking at the poor performance of steel stocks like US Steel, Nucor, etc. These stocks have not rallied at all despite the market's relentless advance.

















Black Swan Insights

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