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An unusual divergence in commodities is hiding signs of a global slowdown, economist says

The U.S. economy is bounding along but economic forecaster Lakshman Achuthan sees evidence of a global slowdown in an unlikely place: Demand for cow hides. 

Achuthan, co-founder of Economic Cycle Research Institute, says hides and other non-exchange-traded sensitive industrial materials such as rubber are often the first item on the production line and their price movements are a barometer for economic activity.

 An unusual divergence is occurring in commodities markets is obscuring signs of a global slowdown, says Achuthan. The more closely watched exchange-traded commodities such as oil and copper have spiked on tighter supply from outlier events such as sharp drops in Venezuelan production. 

"You had a confluence of kind of shocks on supply, negative supply shocks for things like oil or industrial metals, that all kind of hit at the same time and made it seem like the economy was a bit stronger than it really is," explained Achuthan.

 "It's not that there's a recession or anything, but we're certainly slowing," added Achuthan. "When we look at really short-leading indicators including commodity inflation and PMIs and things like that, you're seeing those manufacturing related indicators all edging down. It's not over."

DYI:  This CNBC article though mainstream I do agree there is a world wide slowdown but so far no recession [negative GDP] ahead.  I don’t see currently a recession for the U.S. as well.  So far my indicators for recession has only one of the five markers [all five required for recession call] in negative territory and only modesty is an increased spread between 5 year T-Notes and Vanguard’s junk bond fund [2.77% and 5.65%].  The remaining 4 indicators are solidly positive except for the 2 year T-Note compared to 10 year T-Bonds that are a bit flat.  So far no recession call however with the economy moving in that direction of recession I’m watching my indicators a bit closer.

• DYI’s Recession warning checklist:

• Two year Treasury notes invert ten year Treasury Bonds.

• Widening credit spread…Comparing yields between the 5 year Treasury note and Vanguard’s High-Yield Corporate Bond Fund.

• Falling stock prices…S&P 500 fifty day moving average below the two hundred day moving average.

• Falling Home Builders Index…The indexes fifty day average below its respective two hundred day average.

• Purchases Managers Index:  PMI below 50

DYI:  When all five indicators are present recession is imminent – within 90 days – or already present but not recognized by the majority of the investment community.

DYI