"The collapse in the commodity index is telling us that the peak in global industrial growth is imminent; it's here right now. Markets are going to have to deal with the reality of a slowdown."
-- Lakshman Achuthan, Economic Cycle Research Institute
Nevertheless, the month of May brought the largest drop in commodity prices since the failure of Lehman Brothers (when commodities declined by 55% in the preceding five months in 2008 and signaled the deep fall in U.S. GDP), raising the specter that worldwide economic growth will disappoint in the quarters ahead.
According to Bloomberg, the Journal of Commerce Industrial Price Commodity Smoothed Price Index, "which tracks the growth rate of steel, cattle, hides, tallow and burlap, plunged by 57%" last month. This index is usually a reasonably good tell on prospective growth as it includes a number of commodities that aren't exchange-traded and are therefore less apt to be controlled by speculators. As well, the index of 18 industrial materials "declined the most since October 2008."
Many pay special attention to the price of Dr. Copper -- the commodity is famously said to have a PhD in economics. This is not surprising, for as seen in the chart below, the correlation between copper prices and the S&P 500 is unusually high.
