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Satellites and Economic Data

L: Did you know there is a China Satellite Manufacturing Index (SMI) produced by a company named SpaceKnow that has been live on Bloomberg terminals since last year? We didn't!

One of Jim's favorite economists, Carl Weinberg, mentioned it in his July 5 "Weekly Notes on China's Economy" so we looked it up. Carl is a purist and a bit skeptical of new indices, but as he says, "This metric is so different that we are going to cut it a little bit of slack, and at least agree to think about it as anecdotal evidence about what the [Chinese] economy is doing in real time."

Whether it proves to be a reasonable index to use or not, it is certainly a fascinating attempt at trying to measure economic activity in China, which is notorious for publishing suspicious economic data. Just like the data coming from the late and not-so-great Soviet Union, most economists are at least a bit leery of any numbers coming out of China.

Here's a link to a February article about SpaceKnow and one to the company's own website (which is not very informative) if you want to know more.

Carl did an analysis of the index and he notes "that there has been a breakdown in the relationship between the SMI and actual production since the third quarter of 2014." Without having any access to SpaceKnow's algorithms, he surmises that "SpaceKnow can count active industrial sites, but that's it. This would explain why the SMI tracked China's growth so well when industry was expanding rapidly and monotonically. To grow by 10 percent, you have to increase the number of factories by 10 percent."

However, once factories are not running at full capacity, SpaceKnow's images are not so useful, since a "hot" plant that is running at full capacity and one running at 75 percent capacity look the same. So, maybe the SMI is not so wonderful as SpaceKnow is touting, but it's still a pretty cool idea.

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