KEY DATA: PPI: -1.3%; Ex-Energy: -0.3%; Energy: -19%/ HWOL: -40.8 points
IN A NUTSHELL: “Decelerating inflation and limited job openings are likely to be with us for a while. ”
WHAT IT MEANS: With the biggies, the employment and GDP reports, behind us, there are still some important numbers to watch as we go through the month. Yesterday we saw that while headline consumer inflation decelerated sharply in April, it was largely due to energy prices. Similarly, the April Producer Price Index cratered, also driven by energy. Excluding energy, wholesale costs declined somewhat only moderately. About the only thing that posted major gains were the margins of wholesalers and retailers. Otherwise, prices were down just about everywhere else, including food. Goods (excluding energy) prices fell a little more services costs, but the declines were not that great. Looking into the future, intermediate costs, especially for unprocessed goods, were off significantly and that points to continued downward pressure on producer and possibly consumer prices.
The Conference Board reported that online want ads collapsed in April. With firms closed, that was inevitable. The index level was the lowest since March 2012, but it is still well above the record low set in July 2009. I am not sure we will take that bottom out as firms are starting to reopen.
Fed Chair Powell Speech: Fed Chair Jerome Powell gave a talk today and he raised some important warnings, especially about the potential need for a lot more policy actions on the part of both the Fed and the government. He is worried about an extended recession that devastates small businesses and limits the recovery. He discussed the need to get people back to work quickly or risk extending the period of high unemployment. And he made it clear that Congress has to spend the vast amount of money needed to prevent those concerns from happening. Here are some sections from his speech and they need no further commentary:
While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks. Economic forecasts are uncertain in the best of times, and today the virus raises a new set of questions: How quickly and sustainably will it be brought under control? Can new outbreaks be avoided as social-distancing measures lapse? How long will it take for confidence to return and normal spending to resume? And what will be the scope and timing of new therapies, testing, or a vaccine? The answers to these questions will go a long way toward setting the timing and pace of the economic recovery. Since the answers are currently unknowable, policies will need to be ready to address a range of possible outcomes.
The overall policy response to date has provided a measure of relief and stability, and will provide some support to the recovery when it comes. But the coronavirus crisis raises longer-term concerns as well. The record shows that deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy. … The result could be an extended period of low productivity growth and stagnant incomes.
We ought to do what we can to avoid these outcomes, and that may require additional policy measures. At the Fed, we will continue to use our tools to their fullest until the crisis has passed and the economic recovery is well under way… Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery. This tradeoff is one for our elected representatives, who wield powers of taxation and spending.