Alternative Indicators: What’s Dr. Copper’s Prognosis for the U.S. Economy?

SPEAKER_1 (0:00)

Here's Vanguard's Andy Reed, Head of Behavioral Economics Research, explaining why humans aren't necessarily wired for investing success.

Andy Reed (0:08)

Being an expert in investing is rare. It's the exception to the rule. The average American lacks foundational knowledge and they don't teach this stuff in schools. We're working out though, we've got people who are, let's say, unskilled and unaware, so they're overconfident. They make really risky bets, they make more trades, and they get worse performance.

SPEAKER_1 (0:24)

Get more insights from Vanguard on how you can navigate an uncertain market at vanguard.com.

Alex Ossola (0:30)

Is the economy hot or not? The picture seems to be murky lately.

If you're a glass half full kind of person, you could point to the stock market's strong performance, robust consumer spending, or a relatively low unemployment rate. But if your glass is half empty, you might be fretting over other not-so-positive signs. Inflation is still high. Consumers are feeling pessimistic about the economy, and jobs are getting harder to find. Delayed economic data because of the government shutdown has done little to clear things up. So looking at other alternative stats may help us get a pulse on the economy, even if that data can be messy. Here's WSJ investing columnist Spencer Jacob.

Spencer Jacob (1:16)

The thing is, if you go into it with an open mind, you can learn some things. If you don't have a narrative, if you're going in and saying, hey, what can I find out? What tea leaves can I read? And if lots of them are turning in a certain direction, that's an indication even when you're not seeing it in the official economic data. So this is a pretty good time to be doing it, but it's really always a good time to look at these things.

Alex Ossola (1:36)

This is a special episode of What's News. I'm Alex Ossola for The Wall Street Journal. This is the second episode of our series on alternative economic indicators that might help us gauge how the US economy is doing. In our first episode, we talked about how Nevada's employment rate can be a sign of how consumers are feeling about spending their money. Today, we're talking about something a bit bigger on a global scale, Copper. For about four decades, economists and investors turned to Copper as a reliable global economic indicator. High prices meant the worldwide economy was humming and low prices meant it wasn't. In fact, Copper was considered such a good signal that investors gave it a nickname, Dr. Copper, because depending on who you asked, the medal supposedly had a PhD in economics, or maybe that's an MD for the economy.

Dec Mullarkey (2:31)

It's a great bellwether for the economy. So people think it can diagnose what's going on and reflect that in its price. It's amazing how markets grab these nicknames and they just stick.

Alex Ossola (2:42)

That's Dec Mullarkey, who heads up investment strategy and asset allocation at SLC Management. For nearly 35 years, Mullarkey has used his understanding of the economy to advise clients on what to invest in, and he says the metal has been impossible to ignore. Copper's power as an economic gauge comes from the fact that copper is used in so many activities that drive the global economy, including plumbing, construction, and transportation. Its electrical properties give it a widespread role from the delicate wiring and smartphones to building out a region's power grid. But Mullarkey told me that, over the past decade or so, the relationship between copper and the global economy has gotten a bit blurry, as copper demand in certain countries has risen without necessarily boosting overall global economic activity. He and I discussed what this means for the US economy.

I take it that copper is one of the commodities that you follow. How long have you been paying attention to it?

Dec Mullarkey (3:45)

Copper is the equivalent of oil. You can't ignore it. So I would say I've been tracking it most of my career. But it became dominant in the last 25 years. And that was a result of China joining the WTO in 2001 And that's when the building boom started. And copper was so essential to that. And as a result was so essential to China's growth. So it became a bellwether for how China was doing. And there, of course, were influencing growth in the rest of the world as well. So you can't ignore copper.

Alex Ossola (4:18)

Let's talk about this moment. So what are the numbers showing us right now? Where are copper prices in demand?

Dec Mullarkey (4:25)

Right now, copper prices are almost at historic high. I mean, they're just literally backed off it. And there's a couple of things driving that. So maybe we talk fundamentally like what is different now? First of all, China actually, their building boom has slowed. So that piece has gone away. But this is a lot of housing starts and they're still refurbishing and growing that. But we have a lot of really significant growth. And that's both from building out, say, sustainable energy, the whole data center, AI build that's coming along, the expectation that we're going to have to spend a lot more on defense.