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Tickers in this Article: RTP, BHP, FDX, HOG, CSCO
A series of conflicting signals on the global economy make it difficult to have confidence that the recession is over, raising the question of whether the stock market rally will continue until more consistent reports come out. IN PICTURES: Digging Out Of Debt In 8 Steps

One important measure of the strength and direction of the global economy is the Baltic Dry Index (BDI), which has fallen 25% in the last two weeks. This rather obscure index measures the rates for various ships that haul dry bulk cargo, ranging from the large cape-size vessels down to the smaller handy-size. These ships haul coal, grain, iron ore and other commodities. One thing to note is that they do not transport oil, which is tracked by a different index.

This index fell 92% in 2008 from its peak as demand for various commodities withered during the recession. It has since rebounded significantly off that bottom, but the last two weeks have not been encouraging.

China's Declining Commodity Imports
Some of this decline may be due to the Chinese cutting back on purchases of commodities, as negotiations between the Chinese and the large iron ore producers like Rio Tinto plc (NYSE:RTP) and BHP Billiton Ltd (NYSE:BHP) drag on. The Chinese may be slowing down purchases as a tactic, or simply because they have too much supply in inventory. The latest report from China showed that they imported a record amount of iron ore in the first half of 2009, totaling 58.1 million tons, up 32% on a year-over-year basis.

Russia's Fall
Next door in Russia, things aren't doing so well. The Russian economy fell at an annual rate of 10.9% in the second quarter of 2009. The second largest oil producer in the world will even run a budget deficit this year. Obviously this is not good for the global economy.

Bringing It Home
In the United States, the unemployment rate hit 9.4% in July 2009, down just slightly from the previous month. I understand that unemployment is a lagging indicator, but many companies are still laying off workers despite the conventional wisdom in the market that the economy is on the mend.

FedEx Corporation (NYSE:FDX) just announced it was firing 1000 workers, including 500 at its headquarters in Memphis. The company said the "pace and severity of this downturn is unprecedented in the company's history."

Harley Davidson (NYSE:HOG) also fired 1000 employees, as the American consumer has apparently not returned to their spendthrift ways from before the recession.

Even Technology is not immune, as Cisco Systems, Inc. (NYSE:CSCO) canned as many as 700 employees at its headquarters in California.

The remarkable thing about these cost cutting moves is that all three companies were profitable in the previous year.

The Bottom Line
Investor confusion over the strength and direction of the economy is being stoked by conflicting reports from different countries and sectors, leading to the conclusion that the stock market rally will be probably enter a consolidation phase until more conclusive evidence is released. (Read Buy When There's Blood In The Streets, to learn how contrarian investors find value in the worst market conditions.)

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