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JOC-ECRI Price Index Shows Recovery

A broad-based surge in sensitive industrial prices is providing an unambiguous sign of industrial revival, according to the Economic Cycle Research Institute.

The Journal of Commerce-ECRI industrial price index, as of July 1, was up 19.5% at a smoothed annualized rate, almost exactly reversing a 20.5% decline six months ago.

"There's no holy grail, we look at a lot of indicators, but the strength of this indicator is that it is one of the best signals of trends in the industrial sector," said Lakshman Achuthan, managing director of ECRI.

One of the advantages of using these industrial prices, which exclude agricultural and precious metal commodities, according to Achuthan is that "it excludes weather effects on crops and speculative effects on precious metals. "No one is likely to speculate in tallow," he said.

The JOC-ECRI industrial price index has a good track record. ECRI used it to give a warning that a recession was likely in September 2000, well before most other economists were forecasting one.

Achuthan points out that the recent behavior of industrial price increases meets ECRI's criteria of the "Three Ps" for signaling economic turning points. "It is pronounced, persistent, and pervasive," he said.

In fact, the index is at its highest level since Feb. 3, 1995, has been rising since November, and is across nearly all commodities.

"Manufacturing went into recession before the rest of the economy and stayed there longer. Now it can give a positive contagion and lead the rest of the economy higher," said Achuthan. "It's a virtuous cycle, replacing a vicious one."