On July 1, U.S. stock trading remained weak, continuing a streak that pushed Wall Street into a bear market in June. Traders worried that inflation will be tough to beat and that a recession could be on the way as well. The market’s performance in the first half of 2022 was the worst since the first six months of 1970.
U.S. GDP decreased at an annual rate of 1.6% in the first quarter of 2022, according to the Bureau of Economic Analysis. In the fourth quarter of 2021, real GDP increased 6.9%. The bureau also revised downward its monthly numbers for personal spending, even as people’s disposable income went up.
“Because personal spending is such a main pillar of the U.S economy, those numbers are a source of concern, even as we continue to see that the jobs numbers … continue to signal that the job market still has growth left in it,” cautions Joe Pickard, ISRI’s chief economist and director of commodities.
ISRI economists are waiting to see how the Federal Reserve’s indications that higher interest rates are coming will affect commodities markets. There are already a host of issues currently affecting those markets, including inflationary fears, weaker-than-expected demand from Chinese industry, and Russia’s historic default on its foreign debt and continued control over Ukraine’s grain exports.
“The big thing recycling should be worried about I think, certainly, the tightening of U.S. monetary policy is going to be a recurring theme over the balance of the year,” Pickard says. “That raises concerns about potential impacts on U.S. demand growth, U.S .consumer spending, and by extension, the supply and demand of recyclables on top of that.”
Commodity stocks, including metals, mining, and energy have seen profit booking in recent months. Market watchers wonder if market volatility will cause a commodities selloff or draw investors back to the asset class.
“In some commodities like nonferrous metals, we’ve seen significant correction in recent weeks,” Pickard says. “For the year to date, copper prices are down 14%, as compared to where they were at the end of 2021. Prices for other nonferrous metals, like tin, for example, are down more than 30% year to date.”
Bret Biggers, ISRI senior economist, notes plastics, according to the Bureau, Bureau of Labor Statistics, and their Purchaser’s Price Index numbers, are showing an all-time high. “Paper peaked in the fall, went down a little bit, and has come up to almost the same level that they were in the fall,” Biggers says. “But the one thing that we do see is that the demand for the recycled plastics as well as recycled fiber is strong. This is evident by companies doing a capacity expansion, whether it’s a new facility, or whether it’s replacing equipment for more efficient equipment.”
Pickard notes that oil and gas prices remain elevated—this week he paid $5.50 per gallon to fuel up his car in suburban Washington, D.C. “I wouldn’t say that commodities are destined to suffer in the second half of the year,” Pickard explains. “We’re expecting increased volatility and pricing, because the Fed’s decisions, slower growth, potential slowdown in consumer spending, all have implications across the asset markets.”
The world economy is expected to turn in growth in 2022 of 2.9% according to the World Bank, with U.S. growth forecast to slow to 2.5%, reflecting the negative impact of earlier tariff increases and elevated uncertainty. ISRI’s economists are finding good news for U.S. recyclers in numbers from 2021:
- The total quantity of recycled commodities processed in the U.S. increased 12% from the pandemic-impacted levels in 2020 to 140 million metric tons in 2021.
- Metals represented the bulk (58%) of the material processed by U.S. recyclers at 80.7 million metric tons.
- Recovered paper and fiber was the next largest commodity group by quantity at 45.5 million metric tons.
- The share of material shipped to domestic consumers (72%) increased slightly from recent years as the share exports slipped to 28%.
“I think that’s reflective of both increased domestic demand as the U.S. economy recovered last year, and also increased overseas demand, where we shipped significantly larger volumes to overseas customers as well last year, and at much higher prices too,” Pickard says.
Featured photo courtesy of Storyblocks.
