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The garbage indicator: What trash is telling us about the economy now

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The ‘garbage indicator’ tracks economic growth

It is said that one man's trash is another man's treasure. It also happens that all of our trash could collectively make for a great economic indicator.

In addition to other, more conventional indicators, Deutsche Bank's chief international economist, Torsten Slok, consults freight rail waste data put out by the Association of American Railroads for a check on how the economy is doing.

Given the drop in oil prices and rise in the dollar, "a lot of economic statistics were distorted and you did see a slowdown in a lot of places. ... This indicator is an attempt to get a more pure view of where the business cycle is at the moment," Slok said Monday on CNBC's "Trading Nation."

At this point, the garbage transport gauge "is indeed suggesting that the recovery continues, or that the economic expansion is moving forward from here."


Slok isn't the first to notice the connection between waste carloads and the GDP growth. Michael McDonough, an economist at Bloomberg, has followed growth in the waste carloads indicator for years.

Indeed, the data series has been shown to have a high correlation to changes in GDP. This makes some intuitive sense, given that consumption, construction and other such activities generally create waste.

While peering deeply into trash may sound strange, "all joking aside, this is really an attempt to capture what is the economic activity when we measure it from a whole different angle than we normally do," Slok said.

He added that it generally confirms what economic data have shown, but "if anything, this also points to that there are some upside risks to the outlook from where we are at the moment."

In more conventional data, Tuesday's ISM reading showed that the manufacturing sector expanded in October. The October employment report is set to be released Friday.