The Reuters/Jefferies CRB Index, which tracks commodity prices, is up about 30 percent since its lows set in February. Much of the demand for commodities that drive the CRB up is coming from China, whose economy continues to speed along. The CLSA China Purchasing Managers’ Index rose to its highest mark in a year, indicating accelerating growth in manufacturing and a clear economic rebound.

 

Unlike here in the U.S., where the effects of the stimulus package have been minimal so far and bank lending is still negligible, China’s own stimulus efforts has worked wonders in reducing dependence on exporst and stimulating demand at home. An unprecedented $1.1 trillion worth of new bank loans in the first half of the year are pumping money through the economy and financing consumer spending and company initiatives.

 

Of course, in recent days, we have seen also seen what was interpreted by the market as encouraging reports on the U.S. economy. The National Association of Realtors announced that pending sales of homes—contracts signed for home resales—rose in June for the fifth straight month. The increase was largely due to demand from first time buyers (taking advantage of the tax credit) for lower-priced homes, and as the association’s chief economist Lawrence Yun noted, the boost from first time buyers will probably end in a few months (to qualify for the tax credit, home purchases must be finalized by November, and sales typically take about two months to complete).

 

The Institute for Supply Management reported yesterday that the month of July was the 18^th straight month of the manufacturing sector contraction, with the Index itself remaining below 50 (any reading under 50 indicates contraction). However, the pace of the decline is slowing, and the measurement rose from 44.8 in June to 48.9.

 

Consumer spending increased by 0.4 percent in June even though income fell 1.3 percent from the previous month. The fall in income was to be expected because the increase in May was due to one-time government benefit payments, but the increase in spending was slightly more than expected. It should be noted, however, that purchases of durable goods, which tend to be higher-ticket items, fell 0.2 percent, suggesting consumers are understandably being thrifty. Job losses, a tough headwind for consumer spending, still remain a problem.