Global industrial production rose to a new high during August and is up 2.6% year-over-year. So why has the Commodity Research Bureau Raw Industrials Spot Price index been weak so far this year? I am starting to think it might be a misleading indicator of the global economy. The commodity index was highly correlated with the production index from 2001 to 2011, during the so-called commodity supercycle.
It was super but it was short, lasting only 10 years. Lots of capital was invested to increase the supplies of industrial commodities. It paid off in more supplies but weaker prices. Even the recent weakness of the dollar doesn't seem to be lifting commodity prices as it did in the past.
The same can be said for crude oil and gasoline. Earlier this year, the prices of both were bolstered by geopolitical tensions, which might be subsiding now -- resulting in downward pressure on oil and gasoline prices. Of course, the recent decline in pump prices should provide a boost to U.S. consumer spending.
Source: Ed Yardeni — Ed Yardeni is the president and chief investment strategist of Yardeni Research Inc., a provider of independent investment strategy and economics research for institutional investors.