Wednesday 15 May 2013

Air Traffic is pointing to additional economic activity weakness

"Rashness belongs to youth; prudence to old age." - Marcus Tullius Cicero 

A regular economic activity and deflationary indicator we have been tracking has been Air Cargo. It is according to Nomura a leading indicator of chemical volume growth and economic activity:

"Over the past 13 years’ monthly data, there has been an 84% correlation between air cargo volume growth and global industrial production (IP) growth, with an air cargo lead of one to two months (second graph). In turn, this has translated into a clear relationship between air cargo and chemical industry volume growth" - source Nomura:
"Our air cargo indicator of industrial activity came in at -7.4% (y-o-y) in April, following -3.8% in March and -7.8% in February. As a readily available barometer of global chemicals activity, air cargo volume growth is a useful indicator for chemicals volume growth." - source Nomura

Air cargo volume growth vs global industrial production growth, y-o-y, % - source Nomura:

In addition to Air Cargo trending down, as far as Air Traffic is concerned, demand growth remains weak as indicated by CreditSights in their April 2013 European Airlines Traffic Review. YTD demand in Europe has been flat and April demand was only up by 1% for Air-France-KLM, whereas April 2012 had been up by 5%. Overall demand by regions including Americas was up 2% in April 2013 against up 3% in April 2012 for this European operator. It was worse for IAG, the combined British and Spanish operator (British Airways and Iberia) with Spanish demand particularly weak in April in its domestic market, down 16% whereas it had been up 3% in April 2012. Iberia's traffic is down by 19% due to the weak Spanish economy sapping the demand.

Looks like we are indeed moving more into a soft patch...just saying.

"It's not what you look at that matters, it's what you see." - Henry David Thoreau 

Stay tuned!

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