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The price of copper is sometimes referred to as "Everyman's Economist" because
it is highly correlated with the behavior of the manufacturing sector, as illustrated
in Chart 1.
Chart 1

Today on the London Metal Exchange (LME), the price of 3-month forward copper
finished $110 per tonne lower from Tuesday's close. At $6,530 per tonne, this
is the lowest close for 3-month copper since April 20, 2006 (see Chart 2).
Although today's relatively sharp price drop is in part related to the settlement
of a Chilean miners' strike, copper prices have been in a declining trend since
early September. This weakening in copper prices corroborates the slowdown
in the pace of U.S. manufacturing activity - it appears as though manufacturing
output peaked in August 2006 - and the recession in housing. The decline in
the dollar price of copper is all the more indicative of faltering goods-producing
activity in the U.S. inasmuch it has occurred at the same time that the foreign
exchange value of the dollar has been falling. All else the same, the dollar
price of an internationally-traded generic commodity would be expected to rise
as the foreign-exchange value of the dollar fell. The fact that the dollar
price of copper has declined along with the fall in the dollar implies that
the price of copper has declined in terms of other currencies, not just the
dollar. This could suggest that manufacturing activity globally is slowing.
Chart 2
LME Copper, Grade A: Closing 3-Month Forward Price
$/Metric Tonne

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Paul L. Kasriel, Director of Economic Research
The Northern Trust Company
Economic Research Department
Positive Economic Commentary
"The economics of what is, rather than what you might like it to be."
50 South LaSalle Street, Chicago, Illinois 60675
The information herein is based on sources which The Northern Trust Company
believes to be reliable, but we cannot warrant its accuracy or completeness.
Such information is subject to change and is not intended to influence your
investment decisions.
Copyright © 2005-2009 The Northern
Trust Company
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