Boom Bust Barometer
Compare global industrial demand with US labour-market stress
- Difficulty
- Easy
- Time to result
- ~weeks to results
- Steps
- 5
- Confidence
- 98%
The Boom Bust Barometer combines two timely signals: the CRB Raw Industrials Spot Price Index and US initial unemployment claims. Divide the commodity index by initial claims to create a weekly ratio. The numerator acts as a sensitive gauge of global industrial activity, while the denominator reflects stress in the US labour market, which Yardeni described as important because the US remained a major driver of the global economy. The mechanism is not automatic: a falling commodity index can reflect excess supply rather than recession. Use the ratio as a prompt for investigation, then test whether changes in commodity production, shipping capacity, or another market structure have weakened the signal before drawing a cyclical conclusion.
Origin
Edward Yardeni said he had calculated the Boom Bust Barometer for many years as part of his economic-indicator work at Yardeni Research.
Core principles
- 01Combine global demand with domestic labour stress
- 02Prefer timely indicators with long histories
- 03Reassess an indicator when its underlying supply structure changes
How to run it
- 1
Gather the global signal
Record the CRB Raw Industrials Spot Price Index, which excludes petroleum and wood products and is available daily.
Pro tip Use the same series consistently so the history remains comparable.
Watch out Commodity prices can fall because of excess supply rather than weak demand.
- 2
Gather the labour signal
Record US initial unemployment claims for the corresponding week as the measure of domestic labour-market stress.
Pro tip Use the weekly release aligned with the commodity observation.
- 3
Calculate the ratio
Divide the commodity index by initial unemployment claims to produce the weekly barometer value.
Pro tip Retain a time series rather than interpreting a single reading.
- 4
Interpret the movement
Treat a sustained change as evidence to investigate whether global activity and US employment conditions are strengthening or weakening together.
Pro tip Compare the movement with rail car loadings and West Coast container traffic, which Yardeni also monitored.
Watch out Do not turn one indicator into a complete economic forecast.
- 5
Check the regime
Ask what is different when the signal conflicts with other evidence. Determine whether new capacity or another structural change has altered what the input measures.
Pro tip Use the Baltic Dry Index's shipping-capacity distortion as the model for this check.
Watch out An indicator that worked historically can become misleading when its supply structure changes.
In the wild
Yardeni described industrial commodity prices falling into early 2016. Rather than concluding that the global economy was entering recession, he attributed the move to excessive commodity supply. The example shows why the barometer must be paired with a regime check instead of read mechanically.
→ The weak price signal was interpreted as a supply distortion rather than definitive recession evidence.
Common mistakes
Reading the ratio mechanically
A change in the barometer is a prompt to investigate, not a self-sufficient conclusion about recession or recovery.
Ignoring excess capacity
New commodity or shipping capacity can depress prices even when final demand has not collapsed.
Is it for you?
Best for
It is best for investors and strategists monitoring changes in the global business cycle.
Not ideal for
It is not ideal when commodity prices or labour claims are being driven by unusual supply or reporting distortions.
From the transcript
“I've kind of for many years been calculating the boom Bus Barometer, and that's simply that commodity index divided by initial unemployment claims”
“it's a weekly number”
“you gotta know when these indicators are useful on when they're not”
From the episode
Ed Yardeni Discusses Global Investment Strategy