Leading Indicators and Lumber

One of our go-to indicators to track the direction of the economy is the Conference Board’s Index of Leading Economic Indicators (LEI for short). For 60 years, the LEI has been one of the most reliable indicators in projecting future economic activity. What’s noteworthy today is that seven of the ten factors that comprise the index increased in June. The only constituents to lag were credit, manufacturing of new consumer goods, and consumer confidence. Manufacturing should begin improving as the economy reopens and businesses restart production. Credit and confidence are often the last factors to recover coming out of a recession, but they inevitably will.

In addition to the LEI, prices of industrial commodities can also be a good economic barometer. Copper, lumber, and iron ore, which are central to the global economy, often experience price movements before the economy turns up or down. It is a good sign when commodity prices begin rising during a recession as it indicates a trough in supply and demand imbalances. Commodity prices have rebounded sharply since March. Iron ore, one of the most traded commodities in the world, is selling for the highest price in 12 months. Copper prices have rebounded sharply and are higher from a year ago. The most impressive gains have come from lumber, rising 74% year-to-date. This is clearly a positive sign for the housing market and the global economy. Combining rising commodity prices with the improving leading indicators leads us to conclude the global economy is on the mend and the future just might be better than many think.

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