Key Economic Bellwether Shows America Could Be Heading Toward Recession

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Copper prices continue to drop on a weekly basis, suggesting that a recession could be looming.

The metal is a major component in motors and electronics, and some economists have used it as a barometer to determine whether the economy is strong or not. But on the London Metal Exchange, copper dropped to $6,953 a ton. Itโ€™s down 27.4 percent year-to-date.

The drop on Friday was the first time the contract fell below $7,000 per ton since November 2020. On a weekly basis, it dropped more than 10 percent. The price recovered slightly by 1 percent to $7,165 later Friday.

Under Nasdaqโ€™s measure, copper prices have fallen from about $4.02 per pound on June 17 and is now trading at about $3.23 per pound as of July 15.

Economists have said that copper has hit a bear market before each of the past four recessions.

โ€œCopper below $4 per pound, down over 24 percent from the highs (bear market), and down to a 16-month low tells me that โ€˜recessionโ€™ risks have overtaken โ€˜inflationโ€™ risks,โ€ David Rosenberg, founder and president of Rosenberg Research & Associates, wrote on Friday.

โ€œWe donโ€™t anticipate base metalsโ€™โ€”copperโ€™s includedโ€”outlook to improve until we see a change in Chinese demand,โ€ said Darwei Kung, chief of commodities and portfolio manager at DWS Group, an asset-management firm, according to the Wall Street Journal. China accounts for about half of the worldโ€™s copper consumption.

Rio Tinto warned on July 15 that the global economic outlook was dampening due to the Russia-Ukraine conflict, tighter central bank monetary policies, and persistent COVID-19 restrictions in some areas. On Friday, official data claimed that Chinaโ€™s economic growth slowed in the second quarter.

โ€œPrices for our commodities decreased in the quarter, amid growing recession fears and a decline in consumer confidence,โ€ Rio Tintoย said.ย โ€œTrade disruptions, food protectionism and the global focus on securing energy supplies continue to put pressure on supply chains, which will need to be significantly eased before inflationary pressures subside.โ€

Byย Jack Phillips

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