Looking At The Commodity Markets: No Apparent Strength

by: John M. Mason


Commodity prices continue to decline in the United States as general indexes are off by more than 35 percent, year-over-year.

The drop in the price of oil is still the most dramatic decline to take place over the last 52 weeks, but other areas also have posted substantial declines.

The price of gold is off by more than 15 percent over the past year, reflecting an absence of inflationary expectations on the part of gold bugs.

The United States economy does not seem to be doing that well. In an effort to look for information supporting that interpretation, it is sometimes helpful to look at what is happening in the commodity markets.

Right now, the commodity markets are not doing that well. Looking at more general indexes of commodity prices we observe that the S&P CSGI index is currently down by 40 percent, year-over-year. It is down by 11 percent over the past 13 weeks and is down by almost 8 percent in the past four weeks.

The Reuters/Jeffries CRB index is down by almost 13 percent in the past 13-week period and down by almost 9 percent over the past four weeks.

Looking at the price of gold, often an indicator of how investors are viewing inflationary expectations, the price of gold has dropped by more than 15 percent over the past 52 weeks and by 5 percent over the last four weeks. Certainly no feeling of a pickup in inflationary expectations coming from the gold bugs.

Of course, the big decliner has been oil. The price of oil has dropped by almost 58 percent, year-over-year. For the past 13-week period, the price of oil has fallen by 23 percent; and over the last four weeks, the price has dropped by almost 20 percent.

Looking at other individual items shows much of the same picture. Over the past year the price of wheat has declined by more than 27percent; the price of sugar by 25 percent; the price of lumber by 17 percent; the price of corn by 13 percent; and the price of copper by almost 11 percent.

One can look at shorter periods of time and still get the same picture. The prices of commodities, in general, are continuing to fall.

It might be expected that commodities prices might begin to pick up around the time that the economy begins to accelerate but we are seeing no strength at all in these markets.

A reason for a lack of pickup is that wages increases seem to be modest at best so that consumers, most American families, lack the resources to step up their spending on these items. Furthermore, the money that the Federal Reserve has pumped into the financial system seems to be remaining in the banks as excess reserves or staying in corporate coffers or filtering out to other financial institutions like hedge funds and private equity funds. It doesn't seem as if any of these monies are getting into the hands of consumers.

We also see this situation occurring in the producer price area. The Bureau of Labor Statistics released February data last Friday. The Producer Price Index dropped by 0.6 percent, year-over-year. Looking a little deeper, we see that prices for processed goods for intermediate delivery dropped by 6.4 percent, year-over-year, and the prices for unprocessed goods for intermediate delivery fell by 25.0 percent.

There is certainly no indication from the non-retail sectors that there are any price pressures being felt throughout the economy. And, without any evidence of price pressure in the economy, it is hard to believe that the economy will be showing any strong acceleration in the near future.

Thus, it seems as if we can keep our forecasts for economic growth in the modest range of around 2.5 percent.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.