Today’s update on wholesale prices and new filings for unemployment benefits strengthens the case for thinking that the worst of the economic crisis is behind us. Or perhaps it’s better to say that the numbers du jour don’t derail the case for optimism. But as we opined yesterday, and repeat today, there’s likely to be a longer-than-usual gap between the recession’s trough and a return of what the crowd recognizes as a sustained rebound in growth of some magnitude.
Meantime, there are two more data points that support a somewhat brighter outlook of our still-speculative forecast that the cyclical low point, if not imminent, is near.
Let’s begin with the producer price index (PPI) report for April. Wholesale prices rose 0.3% last month, the government reports. That’s in contrast to the 1.3% drop in March. Yes, PPI remains volatile, and on a year-over-year basis there’s outright deflation. But as the monthly readings suggest, maybe, just maybe, we’ve found some stability in prices.
Still, as the chart below reminds, there’s still quite a bit of play in the month-to-month numbers. It wouldn’t be surprising to see a sharp decline next month or the month after. We’ll just have to wait to confirm, or deny, our suspicion that wholesale prices are in the process of stabilizing after the earth-shattering blowback from the financial and economic crisis of late.
That said, news that monthly prices aren’t in free fall is encouraging for thinking that the deflationary threat is passing. As we’ve discussed repeatedly since this crisis began, including here and here, preventing deflation from taking root is the essential first step for returning the economy to something approximating a normal state. If prices are allowed to decline, the headwinds for growth become far stronger. But there’s reason for mild optimism.