Prices hold steady
as industrial production dips
By MARTIN CRUTSINGER and CHRISTOPHER S. RUGABER
The Associated Press
WASHINGTON – More evidence emerged Friday that the recession is easing, with output by the nation’s factories, mines and utilities falling at the slowest pace in six months.
At least one area of the economy is flat, but that’s welcome news. Consumer prices were level in April after a slight dip the prior month.
Inflation usually doesn’t pick up until well after a recovery begins, noted Mark Vitner, senior economist at Wachovia. If the economy rebounds late this year, as many analysts expect, prices likely will be stable until 2011, he said.
Some economists have been concerned about the possibility of deflation, a sustained period of declining prices that can deepen a recession. But most say that possibility appears remote because the Federal Reserve has responded with force to combat the downturn.
The Fed said output at factories, mines and utilities fell 0.5 percent last month, after revised declines of 1.7 percent in March and 1 percent in February. Analysts had expected a drop of 0.6 percent last month.
Still, the report showed U.S. industry remains weak. Industrial production has fallen in 15 of the 17 months since the recession began in December 2007 and is down 16 percent since then.
“Overall, yet another report that fits within the picture of an economy contracting more slowly but still far from an actual recovery,” Paul Ashworth, senior U.S. economist at Capital Economics, wrote in a note Friday.
A 1.4 percent increase in auto production, which came after huge reductions earlier this year, boosted the overall results. But that won’t last as Chrysler LLC and General Motors Corp. are shutting plants in May and June, which could send industrial production lower, economists said.
Meanwhile, the Labor Department said its Consumer Price Index was flat last month, meeting economists’ expectations. The tame inflation performance reflected a second monthly drop in energy costs and a third straight decline in food prices.
Over the past year, consumer prices have fallen 0.7 percent, the largest 12-month decline since a similar drop for the year ending in June 1955.
Falling prices can be good for shoppers. But over the long term, they can erode wages and cause consumers to postpone purchases, leading to steep drops in production. A destabilizing period of falling prices hasn’t been seen in the U.S. since the Great Depression of the 1930s, though Japan suffered through deflation in the 1990s.
But broad price declines aren’t affecting goods outside food and energy, economists said. Core inflation, which excludes food and energy, rose 0.3 percent last month. It was the biggest jump since July, but about 40 percent of the gain came from a huge rise in tobacco prices, reflecting higher federal taxes.
“Inflation’s not a problem if you don’t smoke,” Vitner said.
Also Friday, a Reuters/University of Michigan index of consumer sentiment rose to an eight-month high in May.