Will Commodities Struggle Through September?

The word on the street recently has been that stocks, commodities, and the economy in general may be poised for a late summer or fall pull back, given some of the key indicators reports that have recently come out involving retail sales and employment.  Certainly there was no expectation that the recession would draw to a close quickly, but we may be finding ourselves in the eye of the storm so to speak, rather than on the mend after a dangerous and severe recession.  There are a few sparks that may serve to ignite a rebound in early 2010, but hope is waning, and it will be more likely that these redeeming factors may only be able to help soften the blow of yet another, more intense recession.

Oil and gasoline consumption, which generally occurs on a much larger scale during the summer months, has been off recently.  The actual supply of oil was underestimated prompting a sharp correction in crude prices last week.  The demand for oil and oil-based products will only further slow as the year comes to an end and as programs like the “Cash for Clinkers” car swap are put to rest.  As these indicators slow, other commodities used on an industrial and production basis will likely cool down as well.  Silver, which has taken quite a bit of punishment as the recession has reared its ugly head last year, will likely fall to levels at or near last November’s sub-$10 range.  It is hard to say whether or not gold, which is directly linked to market instability as well as industrial production will suffer a similar fate or not.

The housing market, which has been drawn ever further down in the recession recently showed little sign of real recovery, even though first time home buyers are beginning to take notice of some of the great deals out there on the market.  The housing market will likely remain volatile as a second wave of sub-prime mortgages are flushed out of the system and the market begins to truly consolidate later this year.  This market consolidation will create even better buying opportunities, however, those who will be most interested in owning a home will have a hard enough time affording one as the economy slows to a crawl through the early part of 2010.

 Holiday sales are one of the only hopes the US has of absorbing much of the shock of the commodities crash which will likely occur between now and the end of the year.  If retail sales can show that the markets are beginning to breathe a little once more, and if the consumer confidence can be re-instilled, no matter how slight that confidence may be, the US economy could potentially hold steady through the first part of 2010.  It is likely that we will see a further economic decline, but Holiday sales and other factors such as a growing savings rate and the elimination of over 25% of the country’s outstanding aggregate credit card debt over the past year stand in the way, or at least stand ready to act as economic shock absorbers as 2009 turns into 2010.