Worst maybe over in US, but not in Europe

Reuters/AFP – U.S. economic data offered more evidence on Friday that the recession’s worst phase may be over, with April consumer prices unchanged and industrial output declining at a slower pace than in March.
 
Signs that the 17-month-old recession may be nearing an end helped push consumer confidence in May to its highest level since investment bank Lehman Brothers’ collapse last September. Further dissipating the gloom, the contraction in New York state factory activity eased this month.

“The more data we are seeing, it’s not a doomsday scenario. Yes we are still in a recession, but we may be in the stage of pre-recovery,” said Andrew Richman, fixed-income strategist at SunTrust Private Wealth Management in Palm Beach, Florida.

Despite the less downbeat data, U.S. stocks fell in choppy trade as investors continued to book profits after the market’s two-month rally from 12-year lows in early March.

Government bond prices slipped and benchmark yields, which move inversely, pushed off two-week lows.

The Labor Department said the U.S. Consumer Price Index was flat last month, as expected, after falling 0.1 percent in March. Compared with the same period last year, consumer prices fell 0.7 percent, the biggest 12-month decline since June 1955.

Rising unemployment is eroding household income and undercutting consumer demand. The virtual absence of demand and the general slack in the economy have robbed companies of pricing power, keeping inflation low and increasing concerns about a dangerous downward spiral in prices.

The CPI report offered something to think about both for those who are worried about falling prices and those who are concerned about the risk of inflation as a flood of money to stimulate demand flows through the economy.

“At the same time that the contraction in growth is slowing, you have a massive amount of spare capacity in the economy,” said Zach Pandl, an economist at Nomura Securities International in New York.

“Even though it looks like the recession is coming to an end and we’re headed toward growth in the second half, those medium-term deflation risks have not gone away yet.”