FIBER: Commodity Prices Are Showing More Life

There's been nothing stealth about recent movements in commodity prices. Many have jumped while others have held firm. That combination has raised the latest commodity price index from the International Business and Economic Research (FIBER) to its highest level since June 2011. At 175.1, last Friday's reading was up 7.3% from 12 months earlier and by roughly the same amount since early November. That suggests that recent weakness in factory sector output will prove short-lived.  During the last ten years there has been a 44% correlation between the three-month change in prices and the change in factory sector industrial production.

As factory output weakened with the effects of Hurricane Sandy, commodity prices fell. That likely helped reduce growth in Q4 real GDP to roughly one percent, according to economists' estimates. Now there's evidence of a turnaround. Still leading the improvement are prices in the miscellaneous group. The gain reflects surging prices for framing lumber (42.5% y/y) and structural panels (49.1% y/y). In the metals group, earlier declines have stabilized. Prices for lead (14.2% y/y) and copper scrap (2.1% y/y) have been notably strong. Aluminum (-3.8% y/y) and steel scrap (-13.0% y/y) prices have stabilized but remain down versus last year. In the textile group, prices have rebounded following the storm led by a recovery in cotton prices but they remain down 20.4% y/y. Crude oil prices (-5.9% y/y) showed a delayed recovery but have risen nearly 10% since the early-December low.

The current forecast for industrial output from the National Association for Business Economics calls for 2.6% growth this year. That follows a 3.7% increase last year and is the weakest gain of the economic recovery. As such, the rate of improvement in industrial commodity prices should ease as 2013 progresses but the direction of change will be upward.

Commodity price data can be found in Haver's DAILY, WEEKLY, USECON and CMDTY databases.