A Softening Is A Recession You Can't Say Out Loud

The Real Estate Espresso Podcast

A Softening Is A Recession You Can’t Say Out Loud

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A Softening Is A Recession You Can’t Say Out Loud: What Global Commodities Prices Tell Us

Today, I am going to illustrate what global commodities prices are revealing about the current state of the global economy. Unlike inflation numbers, unemployment rates or gross domestic product (GDP), which may be manipulated, the supply and demand that drives commodities prices provide a clear understanding of economic conditions.

The Economic Indicators Predicament

We’ve recently heard signals from the Federal Reserve alongside the Bank of Canada and the European Central Bank towards interest rate cuts. However, maintaining an overview on some primary economic indicators like inflation rate, unemployment rate, and GDP, the message from these global economies is that there is a slight slowdown but no significant cause for alarm. Hence, a closer look at the commodities may help us understand this situation better.

Falling Commodity Prices and Its Implications

Over time, several commodities have exhibited a trend of falling prices. These include crude oil prices that have fallen rapidly since the middle of August, continually decreasing despite production cuts by oil-producing countries. Similarly, steel prices have also hit the lowest level since November 2016 and Copper prices dipped below $4 a pound, even failing to recover significantly. Incidentally, gold, often seen as a safe haven in times of economic uncertainty, hit a new all-time high of $2,554 per troy ounce, signalling investors’ concerns about the economy.

Commodity	Price Trend
Crude oil	Falling
Steel	Falling
Copper	Falling
Gold	Rising

The Consequences of Falling Commodity Prices

Deflation has always been devastating to an economy, as it means companies get less and less for their product, while their expenses and loan payments remain constant. For many businesses, deflation leads directly to bankruptcy. More alarming signs of an economic slowdown are the continued falling yields for U.S. treasuries, European Central Bank bonds, and even for People’s Bank of China’s central bank bonds. This casts a spotlight on how governments are working to kick-start their economies amidst such conditions.

In conclusion, while the term “recession” might not be explicitly used, the global economic softening we are currently experiencing is reminiscent of one. The falling prices of various commodities affirm this situation clearly. However, this doesn’t signal the end, but yet another cycle in the global economy, and one that presents both challenges and opportunities.

As you consider these insights, I wish you an outstanding day and encourage you to seize the opportunities presented. I will leave you with one parting thought “A Softening Is A Recession You Can’t Say Out Loud”. I’ll look forward to delving into other significant matters with you again soon.