Raw Materials Weigh Against Double-Dip: Chart of the Day

Prices for industrial raw materials are signaling the global economy will avoid falling back into recession, according to Edward Yardeni, president and chief investment strategist at the research firm bearing his name.

Yardeni based his conclusion on the performance of a Commodity Research Bureau/Reuters index of 13 materials for immediate delivery. The indicator is among the best gauges of the economy’s current condition, he wrote today in a report.

The CHART OF THE DAY compares the CRB index with the quarterly growth rate for U.S. gross domestic product in the past five years. They tended to rise and fall together during this period.

Since peaking on April 26, the raw-material gauge has dropped as much as 9.8 percent. Even so, yesterday’s close of 474.18 was about 50 percent higher than a low in December 2008.

“This CRB index suggests the global economy is slowing, but not dipping,” Yardeni wrote. He was alluding to the threat of a so-called double-dip recession, or the second slump in the past three years. An absence of “financial contagion” will allow the gauge to avoid a second-half plunge, the report said. In the last six months of 2008, it tumbled 34 percent.

Five metals -- copper scrap, lead scrap, steel scrap, tin and zinc -- are included in the indicator. It’s also based on prices for burlap, cotton, hides, print cloth, rosin, rubber, tallow and wool tops, a processed form of wool.

(To save a copy of the chart, click here.)

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.