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Commodities Send Signal Before Long Recession


A record plunge in commodities may signal the U.S. is headed for the longest recession since 1981, just after Ronald Reagan became president and the economy began a 16-month slump.

Industrial raw materials measured by the Journal of Commerce fell at an annual rate of as much as 56 percent last week, the most since 1949 and worse than the declines before every recession since then. Crude oil, copper and wheat tumbled more than 50 percent from records this year as the U.S. economy declined in the third quarter by the most since 2001.

“The industrial sector, which was helping to keep the recession relatively mild, has completely given way and now we need to be prepared for a much more severe recession,” said Lakshman Achuthan, managing director at the Economic Cycle Research Institute in New York, which compiles the Journal of Commerce data. “It's at least going to look something like what we saw in the early 1980s, but it could be worse.”...

Consensus View

The commodity decline coupled with economic data signal the current slowdown will last at least 16 months and spur slowdowns globally, not just in the U.S. and Europe, ECRI's Achuthan said. The slumps of 1990 and 2001 lasted eight months, according to NBER data.

“As is usually the case, the commodity index is ahead of consensus right now and indicating just how deep and how long this global recession will be,” Achuthan said...


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