Mining Activity Declines Dramatically
Of these 3 components, utilities have so far fared the best. Until a few months ago, mining also performed a lot better than manufacturing. But since November 2008, mining has declined by 9.1%, even more than the 7.8% drop in manufacturing. During the latest 3 months, the difference is even greater, 3.6% for manufacturing and 6.9% for mining.
This is of course a lagged effect of great commodity price sell-off in late 2008. While for example Copper is up more than 60% since its late 2008 low of $1.25 per pound, it is still about 50% lower than the peak of more than $4 per pound level that we saw a year ago. This means that the incentive for extracting copper and most other commodities is much smaller than a year ago. And for that reason, commodity producers are investing a lot less in new capacity, and in increasingly many cases, they don't even find it profitable to utilize all existing capacity.
That will have a distinctive stagflationary effect-it will lower growth while at the same time contributing to higher future price inflation.