 Cautious, and in some cases pessimistic, guidance issued by chain stores last week is ample proof that they are expecting the inevitable. Consumers are left to deal with a painfully slow recovery in the job market recovery. Despite payrolls swelling in recent months, income has barely budged. The economy saw a cumulative addition of 1,184 jobs since October of 2010 or an average of 169,000 jobs per month, while during the period average hourly earnings have grown only by 0.8 percent. Disposable income, which the consumers are left with for spending and saving after paying his taxes, may further be hit by inflationary trends engendered by higher oil prices. Even as doubts resurface about the resilience of the U.S. consumers, more troubling news broke out from the manufacturing sector. The buoyant pace at which activity picked up in the sector post the recession has notably moderated. And to make matters worse, the housing market continues to be in doldrums, with last week's data vouching for the fact. Until inventory overhang remains, there is no salvation in sight for the debilitated housing market The fiscal front is equally worrisome. Last week, there was a flutter over the government debt reaching its statutory limit of $14,294 billion. The government resorted to some extraordinary budget maneuvering to allow it to remain within bounds until around early August. State Street views the options of either defaulting or implementing spending cuts to avoid exceeding the debt limit as disastrous not only for the domestic economy but also to the overseas economies. Manufacturing sector is losing some of the vibrancy shown during the early stages of the post-slump recovery. The New York Federal Reserve said last week conditions among the state's manufacturers improved at a much slower rate in May, with the business conditions index dropping to 11.9 from 21.7 in April. However, the details of the report were not as negative. The employment index rose 2 points and the average workweek index also increased. Additionally, the backlog orders rose to 9.7 from 2.7, while the new orders index slipped to 17.2 from 22.3. More importantly, the 6-month outlook index rose to 52.7 in May from 47.4, reaching the highest reading since January. Meanwhile, the Philadelphia Federal Reserve's manufacturing survey for May revealed that manufacturing conditions expanded at a markedly slower pace. The business conditions index based on the survey fell to 3.9 in May from 18.5 in April. The new orders index declined 5.4 points to 18.8, while the order backlogs index fell into negative territory, declining to -7.8 from 12.9 in the previous month. However, on a positive note, the employment index rose 10 points to 22.1, but the average workweek index slipped to 3.9 in May from the previous month's 17.7. The 6-month outlook index declined 17 points to 16.6, the weakest level since January 2009. A separate report released by the Federal Reserve showed that industrial production remained unchanged in April compared to the previous month. Manufacturing output slid 0.4 percent, marking the first drop since June 2010. Reflecting the impact of parts shortages owing to the closure of units in Japan, motor vehicle/parts production declined 8.9 percent. Excluding auto output, manufacturing output was up a modest 0.2 percent. Machinery, mining, computer/electronics output and electric utility output showed strength. Meanwhile, capacity utilization edged down 0.1 percentage points to 74.9 percent. Housing market readings were also somber. Existing home sales fell to a seasonally adjusted annual rate of 5.05 million units in April from 5.09 million in March. The share of distressed sales as a percentage of total sales fell to 37 percent from 40 percent in March. Single-family as well as condominium/co-operatives sales declined. Inventories in absolute terms rose to 3.87 million, the most since September, while in terms of months of supply, inventories rose to 9.2 months in April from 8.3 months in March. The median sales price of an existing home fell 5 percent year-over-year. Additionally, housing starts unexpectedly fell by 10.6 percent to a seasonally adjusted annual rate of 523,000 in April. The previous month's reading was upwardly revised to 585,000 from the initially estimated reading of 549,000. Single-family starts fell 5.1 percent compared to a steeper 24.1 percent tumble by multi-family starts. Distress sales that have pushed up inventory levels along with the not-so-favorable weather impacted starts during the month. Building permits declined a steeper than expected 4 percent in April. The National Association of Home Builders' housing market survey released last week showed that its housing market index remained unchanged at 16 in May compared to expectations for a 1-point improvement to 17. The present situation index rose 1 point to 16, while the sales expectations index declined 2 points to 20, the lowest reading since September 2010. Meanwhile, the index gauging prospective buyer traffic rose 1 point to a still depressed reading of 14. Meanwhile, the Conference Board said its leading economic indicators index fell 0.3 percent month-over-month in April, stalling the nine-month rising streak. Initial jobless claims, vendor performance and building permits served as the biggest drags on the index, while the interest rate spread and stock prices contributed positively. Meanwhile, the coincident index rose 0.1 percent compared to a steeper 0.5 percent increase by the lagging index. As expected, the minutes of the FOMC meeting did not reveal many surprises, given the fact that Federal Reserve Chairman Ben Bernanke discussed most of the issues in his post-meeting press briefing on April 27th. The minutes emphasized that the central bank thinks the recent rise in inflation is transitory. Meanwhile, growth is expected to accelerate later in the year after the slowdown in the first quarter. Nevertheless, the uptick is expected to be only limited. The Fed also foresees moderate growth in spending. Some FOMC members opined that another asset purchase program would be warranted only if there is a significant change in the economic outlook or risks to the outlook. A few also seem to believe that the increase in inflation risks may possibly warrant a less-accommodative policy sooner than anticipated. The unfolding week's calendar suggests a flurry of activity for Main Street, although only a handful of the events have the potential to move markets. Traders could keep a close eye on the durable goods orders report for April, the weekly jobless claims, the Commerce Department's new home sales report for April and the National Association of Realtors' pending homes sales index for April. Some Fed speeches, the Bureau of Economic Analysis' personal income and spending report for April, the final reading of the Reuters/University of Michigan's consumer sentiment index for May, the preliminary first quarter GDP report, the Federal Housing Finance Association's house price index for March and Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week. A slip back in transportation orders is expected to weigh on durable goods orders for April. Boeing (BA) reported just 2 orders for April compared to 98 for March and 21 for February. Given the fact that manufacturing activity has seen a slight setback recently due to supply chain disruptions resulting from the Japanese quake, machinery and equipment orders may moderate. However, BMO sees a continued boost from tax incentives, which may offset the weakness stemming from moderating factory growth. New home sales are expected to have stagnated in April, as existing homes flood the market by way of replenishment from foreclosures. After new home sales hit a record low in February due to adverse weather condition along with fundamental weakness, they rebounded in April. However, economists do not expect a follow through in April. Personal spending may have risen in nominal terms, although higher food and energy prices may have weighed on real spending. However, one can expect some respite in the coming months if gas prices thaw in line with the recent pullback in energy prices. Meanwhile, recent payroll gains and the modest upside in earnings suggest another increase in personal income. Monday St. Louis Federal Reserve Bank President James Bullard is due to speak on the economy and monetary policy to the Mineral Area College Cozean Foundation in Park Hill, Mo at 8:10 AM ET. Tuesday Boston Federal Reserve Bank President Eric Rosengren will speak to a conference on a framework for financial stability and regulatory priorities in St. Petersburg, Russia at 2 AM ET. Federal Reserve Governor Elizabeth Duke is also due to speak on financial education at Boston University at 8:25 AM ET. Additionally, Kansas City Federal Reserve Bank President Thomas Hoenig is scheduled to speak to the 29th Annual Monetary and Trade Conference in Philadelphia at 9:50 AM ET. The Commerce Department is due to release its new home sales report for April at 10 AM ET. The consensus estimate calls for new homes sales of 300,000, unchanged from the previous month. New home sales rose 11.1 percent month-over-month to a seasonally adjusted annual rate of 300,000 in March. The February reading was upwardly revised to 270,000 units. Despite the surge, sales of new homes are still 78 percent below their peak. Regionally, the Northeast, Midwest and West reported month-over-month increases, while sales in the South dipped 0.6 percent. Inventories in unit terms fell 1.1 percent to 183,000 units and in terms of the months of supply fell to 7.3 months. The median sales price of a new home was $213,800. Bullard will speak again on Tuesday at 1:20 PM ET. The St. Louis Fed president will speak to the Cape Girardeau West Rotary Club in Cape Girardeau, Mo. Wednesday The Commerce Department is set to release its durable goods orders report, which gives the value of orders placed for goods designed to last for more than 3 years, at 8:30 AM ET. Economists expect a 3 percent drop in durable goods orders for April. In March, durable goods orders rose 2.9 percent month-over-month in March following a 0.8 percent increase in February. The bulk of the increase was due to higher transportation equipment orders, which rose 6.2 percent. Shipments and inventories increased by 2.1 percent and 1.4 percent, respectively, while unfilled orders rose a more modest 0.8 percent. The Federal House Finance Agency-FHFA is set to release its house price index for March at 10 AM ET. The index is a weighted, repeat-sales index, which measures average price changes of single-family houses in repeat sales or refinancings on the same properties. Minneapolis Federal Reserve Bank President Narayana Kocherlakota will speak to the Chamber of Commerce in Rochester, Minnesota at 1 PM ET. The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended May 20th at 10:30 AM ET. Crude oil stockpiles remained nearly unchanged at 370.3 million barrels in the week ended May 13th and yet remained above the upper limit of the average range. Gasoline inventories edged up by 0.1 million barrels and were in the lower limit of the average range. Distillate stockpiles fell by 1.2 million barrels, although they remained in the upper limit of the average range. Refinery capacity utilization averaged 83.2 percent over the four-weeks ended May 13th compared to 81.7 percent over the previous four weeks. Thursday The Bureau of Economic Analysis is due to release its preliminary estimate of first quarter GDP at 8:30 AM ET. Economists expect GDP growth for the quarter to be upwardly revised to 2.1 percent. The U.S. economy continued to expand in the first quarter of 2011, although at a slower rate than most economists had predicted. Gross domestic product increased at an annual rate of 1.8 percent, reflecting a notable slowdown from the 3.1 percent growth seen in the fourth quarter of 2010. Construction, net trade and government spending negatively impacted growth, while consumer spending rose a better than expected 2.7 percent, although a slowdown from the 4 percent rate in the previous quarter. Spending on equipment and software was up 11.6 percent. The Labor Department is due to release its customary jobless claims report for the week ended May 21st at 8:30 AM ET. Economists expect claims to decline to 404,000. Jobless claims fell to 409,000 in the week ended May 13th compared to 438,000 in the previous week. Nevertheless, claims remained above the 400,000 level for the sixth straight week. Friday The Bureau of Economic Analysis is due to release its personal income & outlays report for April. Economists expect the report, which is due out at 8:30 AM ET, to show that personal income and personal spending increased 0.4 percent each in the month. Personal spending rose 0.6 month-over-month in March. The previous month's gain was upwardly revised to 0.9 percent. Economists had expected spending growth of 0.5 percent for the month. Meanwhile, personal income rose 0.5 percent, exceeding expectations for a 0.3 percent increase. Income growth was boosted by higher personal interest income and personal dividend income. Additionally, personal current taxes, which are a deduction from income, rose at a slower rate. The core personal consumption expenditures price index rose 0.1 percent month-over-over, slower than the 0.2 percent growth in the previous month, and was 0.9 percent higher than a year-ago. The Reuters/University of Michigan's final report on the consumer sentiment index for May is scheduled to be released at 9:55 AM ET. The consumer sentiment index is expected to be upwardly revised by a modest margin to 72.5. Data on Pending Home Sales, which is a leading indicator of housing market activity released by the National Association of Realtors, is due out at 10 AM ET. A pending sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale. The index is expected to decline by 1 percent in April. The index rose 5.1 percent in March to a 3-month high, marking the second straight month of gains. Pending home sales were higher in the Midwest, South and West, while sales were down in the Northeast. Annually, pending home sales were down 12 percent. Cautious, and in some cases pessimistic, guidance issued by chain stores last week is ample proof that they are expecting the inevitable. Consumers are left to deal with a painfully slow recovery in the job market recovery. Despite payrolls swelling in recent months, income has barely budged. The economy saw a cumulative addition of 1,184 jobs since October of 2010 or an average of 169,000 jobs per month, while during the period average hourly earnings have grown only by 0.8 percent. (Market News Provided by RTTNews) | 
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