Commodities Near Bottom on Consumer Rebound: Chart of the Day

By Jeff Wilson

Nov. 28 (Bloomberg) -- Commodity prices that plunged from records since the end of June may be “near a bottom” as a return of consumer confidence signals a rebound, said Dale Durchholz, at AgriVisor LLC in Bloomington, Illinois.

A 42 percent drop in retail gasoline since September “boosted consumer disposable income, improving demand for food” and fueling an unexpected gain in consumer confidence this month, Durchholz said. “People may not be confident to buy a new car or a refrigerator, but they will be more willing to go out to eat or have people over for a nice dinner.”

The CHART OF THE DAY shows that plunges in the Conference Board’s consumer confidence index since the early 1970s has coincided with lows in the Constant Commodity Index, a geometric average of 17 commodities. The oil-price shock of 1973, which led to a recession in 1974, is similar to the record surge in commodities this year, which also was preceded by a drop in consumer confidence that began in August 2007, Durchholz said.

“This economic downturn will be more like the harsh recession in the early 1970s and will be followed by another surge in commodities,” because the money that the government is pouring into the economy will fuel increased demand for raw materials and food, Durchholz said. “Confidence is going to improve with a new president.”

The Constant Commodity index fell to 341.55 on Nov. 20, the lowest in almost three years and above 337.60, the high from November 1980 that had been the record before 2005. If the index stays above the 1980 high, the likelihood increases that commodities will resume their rally next year, Durchholz said.

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net