This report will provide information on key price movements in the U.S. economy. First will be a look at home prices, where the news is almost all good. Then the emphasis will shift to commodity prices, where the assessment of the news depends on one’s perspective. Tied to commodity prices is what has been happening to the value of the U.S. dollar in international currency markets. The bonds are fascinating and the shifts in opposite directions are not just a coincidence. The only conclusion to be reached is that prices generally are beginning to firm up.

Existing home resales prices – Case-Shiller

Let’s begin with existing home resale prices. The S&P/Case-Shiller report has just come out for August. The 10 and 20-city composite indices are becoming increasingly less negative. They are now -11% where they had been nearly -20% at the start of this year. In fact, the year over year decline in existing home prices has been moderating for the past seven months.

The price declines for the three major cities in California are climbing out of the basement. San Francisco home prices are now -13%. In Los Angeles, they are -12% and in San Diego, -9%. The other largest cities in the country covered by Case-Shiller – New York, Chicago and Washington, D.C. – have home price declines ranging from -8% to -13%. The cities with the biggest drops year over year are Las Vegas -30%, Phoenix -25% and Detroit -23%. There are no surprises there. The cities with the firmest prices are Dallas -1%, Denver -2%, Cleveland -3% and Boston -4%.

Commodity prices

Now consider commodity prices. The following are the changes in prices for eight key commodities from their trough levels last winter and early spring to the present: copper +103%; nickel +82%; oil +78%; silver +67%; aluminum +41%; gold +31%; softwood lumber +21%; and pulp +17%. These increases are a combination of stronger demand and stockpiling from China and Southeast Asia and a movement into assets other than U.S. government securities.

Value of the U.S. dollar

At the same time as commodity prices have been advancing, the value of the U.S. dollar has been retreating. Versus February 2009, the greenback has had the following shifts against other key exchange rates: Indian Rupee -6%; Japanese yen -7%; British pound and Mexican peso -11%; Swiss franc -12%; and the euro -14%. There have been even sharper declines compared with the currencies of nations having raw-material-based economies. Versus the Canadian dollar, the greenback is -13%, versus the Brazilian real -24%, and versus the Australian dollar, -27%.

Impact on import prices

Most pertinent about the decline in value of the U.S. dollar is the impact that this will have on import prices. As a currency declines, the cost to purchase goods from outside the country increases. A nation’s currency value is the price that other nations have to pay to acquire it. While the price of the U.S. dollar is dropping in currency markets, this has the opposite impact on prices at home. It would seem that the prevailing winds for prices are blowing upwards.

There is an important exception. While the price of imports is growing more expensive from almost everywhere else in the world for Americans, it is staying the same for goods from China. That is because the yuan is fixed in value relative to the Greenback. This also means that the price of Chinese goods is becoming less expensive in almost every country except the U.S.

On the flip side, the price to China of importing raw materials from Australia, Brazil and Canada is climbing at a good pace. The U.S. and China at least have that in common, rising import prices.