Copper Price Corroborates Manufacturing Slowdown
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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Author: Paul Kasriel
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
Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005. The accuracy of Paul's 2008 economic forecast was ranked in the top five of The Wall Street Journal survey panel of economists. In January 2009, The Wall Street Journal and Forbes cited Paul as one of the few who identified early on the formation of the housing bubble and foresaw the economic and financial market havoc that would ensue after the bubble inevitably burst. Through written commentaries containing his straightforward and often nonconsensus analysis of economic and financial market issues, Paul has developed a loyal following in the financial community. The Northern's economic website was listed as one of the top ten most interesting by The Wall Street Journal. Paul is the co-author of a book entitled Seven Indicators That Move Markets.
Paul began his career as a research economist at the Federal Reserve Bank of Chicago. He has taught courses in finance at the DePaul University Kellstadt Graduate School of Business and at the Northwestern University Kellogg Graduate School of Management. Paul serves on the Economic Advisory Committee of the American Bankers Association.
The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. 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.
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