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September 5, 2007 (5:00 PM)
Waiting For Confirmation in Commodities
“Outside of real estate, reports that the turmoil in financial markets had affected economic activity during the survey period were limited”. Fed’s Beige Book
While the Fed’s Beige Book, current as of August 27, failed to paint a picture of severe economic lethargy, a host of other reports released today did. To be sure, pending home sales slumped by 12.2% in July, announced job cuts spiked in August, small business confidence declined (L), and August nonfarm private employment grew by only 38,000. On this last data set - which presages this Friday’s more closely watched jobs report from the BLS - a chart from ADP is particularly worrisome in that it suggests employment growth is tracking at its slowest pace in 4-years. While there may be little to suggest that job cuts have materially spread from housing/financial related positions, given the increasingly bleak outlook for the U.S. housing market today’s batch of data suggests that it may only be a matter of time.
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One area to key on as the U.S. economy struggles is commodity prices and related indicators. To date there has been isolated weakness in commodity prices in response to slow down news/fears (i.e. copper dropped to a 1-week low today), but nothing of substance. For example, railway traffic is down this year, the freight statistics (2) have been weak, and lumber prices have declined, but crude is above $70 a barrel, the BDI Index (2) is at record levels, and many CRB indices are near record highs.
While there may be some validity to the peak oil and ethanol revolution arguments (or that limited supply is counteracting any softness in demand), the more obvious conclusion is that global demand for commodities generally remains strong. In short, key on commodities for confirmation of a broadening U.S. economic bust. Specifically, given its swan dive earlier this year, watch one of the most economically sensitive commodities around: copper.
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