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This past week, markets continued to worry about where Fed monetary policy is headed. And it was not just the U.S. central bank that affected markets. Meanwhile, the U.S. economy remains sluggish on average.
 For the week, equities declined on worries that that Fed will taper quantitative easing later this year. Economic news was mixed.
The week started off little changed for most indexes as investors mostly shrugged off a boost to the U.S.'s credit rating by S&P. On the positive side, St. Louis Fed President James Bullard said that “aggressive” bond buying by the Fed is appropriate given that inflation is below the Fed’s target of 2 percent inflation. Offsetting, China’s industrial production growth fell below expectations.
Tuesday, stocks dropped after the Bank of Japan left its monetary policy unchanged. Traders had hoped for additional stimulus measures. On Wednesday, equities dropped on concern about the possible slowing (but not yet declining) of the Fed’s quantitative easing programs. There was no notable indicator news to distract traders from the upcoming week’s Fed policy decision.
 On Thursday, good news on the economic front was actually good news for equities. Stocks rallied significantly on better-than-expected retail sales and on an unexpected drop in initial jobless claims. Deal making on acquisitions also added to lift. But the week ended on a sour note, primarily due to the International Monetary Fund cutting its 2014 outlook for the U.S. Also, industrial production was flat, falling below expectations.
Equities were down this past week. The Dow was down 1.2 percent; the S&P 500, down 1.0 percent; the Nasdaq, down 1.3 percent; the Russell 2000, down 0.6 percent; and the Wilshire 5000, down 0.9 percent.
For the year-to-date, major indexes are up as follows: the Dow, up 15.0 percent; the S&P 500, up 14.1 percent; the Nasdaq, up 13.4 percent; the Russell 2000, up 15.5 percent; and the Wilshire 5000, up 14.4 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Treasury yields declined moderately this past week with only a couple of days of notable daily swings—on Wednesday and Thursday.
Yields nudged up Monday on the upgrade by S&P on the U.S. outlook from negative to stable. This added to the view that the Fed may slow quantitative easing. But it did not change the view by much. On Tuesday, rates slipped in the other direction as enough traders saw rates as a little on the high side and were willing to take the bet that the Fed is not going to engage in an early slowing of quantitative easing.
But sentiment swung the other way Wednesday as evidenced by auction results. With no significant economic indicator news, it was all about which set of traders had the strongest conviction—those betting the Fed will taper and those betting the Fed will continue as is. On Wednesday, to a mild degree, those betting on tapering edged out the other camp and rates rose modestly.
And sentiment swung again Thursday about Fed policy. Economic news was moderately favorable on retail sales and initial jobless claims but the view took place that the Fed will hold steady—with a WSJ article helping to reduce worries about near-term Fed slowing of monetary ease. Rates were down marginally on Friday on soft industrial production.
Overall, it has been oscillating sentiment about potential Fed moves on quantitative easing that has moved the bond market. And as in equities, traders have been inconsistent about whether good economic news is good news or bad news.
For this past week Treasury rates were down as follows: 3-month T-bill, down 1 basis point; the 2-year note, down 2 basis points; the 5-year note, down 7 basis points; the 7-year note, down 6 basis points; the 10-year note, down 4 basis points; and the 30-year bond, down 3 basis points.
 This past week the spot price of West Texas Intermediate continued its recent upward drift. There were no major daily swings in prices. On Monday, WTI eased on lower-than-expected growth in Chinese industrial production. Spot slipped Tuesday on lack of new initiatives by the Bank of Japan. WTI firmed slightly Wednesday on a weaker dollar and on domestic turmoil in Turkey. Crude gained under a dollar a barrel Thursday on favorable economic news in the U.S. On Friday, spot WTI rose just over a dollar a barrel on a dip in the dollar and further domestic tension in Turkey.
Net for the week, the spot price for West Texas Intermediate advanced $1.70 per barrel to settle at $97.85.
This past week, we saw two notable surprises—retail sales on the upside and industrial production on the downside.
 May retail sales surprised on the upside and increased 0.6 percent on the month and were up 4.3 percent from a year ago. Retail sales excluding just autos and excluding both autos and gasoline were up 0.3 percent from April, much as expected. On the year, they were up 2.8 percent and 4.1 percent respectively.
 Most sales sub-categories were up on the month. Auto sales were up 1.8 percent, gaining for a second consecutive month after increasing 0.7 percent in April. Sales at gasoline stations edged down 0.2 percent thanks to declining prices (seasonally adjusted). Elsewhere, furniture and home furnishing stores (down 0.8 percent), electronics & appliances (down 0.4 percent) and clothing & accessories (down 0.2 percent) were down on the month. All other categories advanced with building materials climbing 0.9 percent, food rising 0.7 percent and sporting goods increasing 0.6 percent.
This report is a positive for consumer sector growth in the second quarter, putting sales up at a seasonally adjusted rate of 2.3 percent from the first quarter average. Second quarter GDP growth may be sluggish but not quite as sluggish as earlier thought for personal consumption growth.
 Consumer sentiment has been oscillating upward slowly since the mid-2011 plunge. Consumer spirits have been on a climb the last couple of months, but dipped back mid-June to 82.7 versus May's 84.5. The consumer's fundamental outlook for the economy is little changed with the expectations component actually rising nearly 1 point to 76.7 which is near a recovery high. A separate reading on the 12-month economic outlook was up 2 points to 102.
But there is weakness in the report and it's in the assessment of current conditions, which is down nearly 6 points from May to 92.1. The comparison with May is very important, offering an early indication of consumer weakness so far in June in what will hold down expectations for consumer spending during the month.
 Gasoline prices have been inching higher (unadjusted and more recently adjusted basis), reflected in inflation expectations which likewise inched higher. One-year expectations were up 1 tenth to 3.2 percent with 5-year expectations also up 1 tenth to 3.0 percent.
Overall, the consumer seems to be doing a good job as amateur economist—recognizing that current economic growth is not so great, that the latest monthly inflation hit to real income is not good, but that prospects ahead are likely to be better.
 The BLS Jobs Openings and Labor Turnover Survey is not showing much forward momentum in the labor market. In recent months, growth in openings has been modest. Just as important, actual hires have been essentially flat. Separations—at least—remained below the hire rate.
 There were 3.757 million job openings on the last business day of April, little changed from a revised 3.875 million in March. In April, the number of job openings was little changed in all industries and regions. The hires rate (3.3 percent) and separations rate (3.2 percent) were also little changed.
The number of job openings in April was little changed over the year for total nonfarm, total private, and government. Job openings were little changed over the year in all regions with the South showing the greatest rate of growth.
Over the 12 months ending in April 2013, hires totaled 52.0 million and separations totaled 50.2 million, yielding a net employment gain of 1.8 million. These figures include workers who may have been hired and separated more than once during the year.
Overall, the latest JOLTS report points to a soft labor market.
 The manufacturing sector remains very soft based on May data. Overall industrial production was unchanged in May after declining 0.4 percent in April.
The manufacturing component edged up 0.1 percent, following a decline of 0.4 percent in April. Excluding motor vehicles, manufacturing rose only 0.1 percent in May after a 0.4 percent decrease the prior month.
 The output of utilities decreased in May after a drop of 3.2 percent the month before. This component weakness was the main reason for the miss at the headline level. Production at mines gained 0.7 percent after rebounding 1.1 percent in April.
A mild positive in the report came from the auto sector. Motor vehicle assemblies nudged up to an 11.04 million unit annualized pace from 11.00 million in April.
Capacity utilization for total industry decreased to 77.6 percent in May from 77.7 percent the month before. Expectations were for 77.9 percent.
While utilities tugged down on the headline number, manufacturing clearly is weak separately. The Fed likely will take notice for discussion on early tapering or not at next week's FOMC meeting. Also, the more sluggish production numbers point to notably soft second quarter GDP growth—even if the consumer component estimate likely has been bumped up. Production weakness may show up in other components of GDP such as inventories, exports, or equipment investment.
The recent trends in sector strengths and weakness continue. Consumer spending has oscillated but has been more on the moderately positive side. This is despite continuing sluggishness in the labor market. Manufacturing remains in a recent slump. And traders and investors continue to try to see how the Fed views the overall picture—especially for the labor market and future inflation.
With markets swaying back and forth on their views of potential tapering by the Fed on quantitative easing later this year, this week’s highlights are primarily Fed related, including the FOMC statement, FOMC forecasts, and the chairman’s press conference. Changes in the statement and forecasts could move markets along with comments by Bernanke. Leading into the Fed’s policy decision on Wednesday, the CPI report and housing starts report could affect the tenor of the hawks within the FOMC.
The Empire State manufacturing index fell more than 4 points in the May report to minus 1.43 for the first negative reading since January. A negative reading indicates month-to-month contraction though, in this case which was just barely below zero, only marginal contraction compared to last month. The new orders index is a key detail in these reports and, like the headline index, has turned negative for Empire State but only slightly, at minus 1.17 versus plus 2.20 in April. This points to a sluggish June for the overall index.
Empire State Manufacturing Survey Consensus Forecast for June 13: 0.50
Range: -2.00 to 4.00
NAHB housing market index for May was up 3 points from a downwardly revised April to a 44 level that was still however below 50 to indicate overall pessimism. The index peaked this cycle at 47 in December and January. Over 50, however, and for a second month at 53 for a 1 point gain, was the six-month sales outlook. The gain in this component points to rising activity through the remainder of the spring and for the summer. But spring so far has been soft for the nation's home builders though the component for current sales rose 4 points but was still under 50 at 48. This component peaked at 51 and 52 late last year and early this year. The third component in the report is buyer traffic which remained badly depressed at 33 and points to a limited number of buyers in the market. Interestingly, the report notes that the buyers who are in the market have a sense of urgency because of the limited number of new homes that are for sale.
NAHB housing market index Consensus Forecast for June 13: 45
Range: 43 to 47
The consumer price index for April fell 0.4 percent after declining 0.2 percent in March. The core CPI—excluding food and energy was soft, matching the March rate of 0.1 percent. By major components outside the core, energy fell 4.3 percent, following a drop of 2.6 percent in March. Gasoline decreased 8.1 percent, following a decline of 4.4 percent. The food component rose 0.2 percent after no change in March. For the core measure, the indexes for shelter, used cars and trucks, new vehicles, and tobacco all increased in April. These increases were partially offset by declines in the indexes for apparel, airline fares, and recreation. Last week’s PPI readings for May suggest that the CPI headline could be on the warm side but with the core still moderate.
CPI Consensus Forecast for May 13 +0.2 percent
Range: 0.0 to +0.5 percent
CPI ex food & energy Consensus Forecast for May 13: +0.2 percent
Range: +0.1 to +0.2 percent
Housing starts for April, housing starts notably disappointed but housing permits were unexpectedly optimistic. In April, housing starts plunged a monthly 16.5 percent after rising 5.4 percent in March. The April starts annualized level of 0.853 million units was up 13.1 percent on a year-ago basis. The decrease in starts was led by a monthly 38.9 percent drop in the multifamily component after a 25.6 percent gain in March. The single-family component slipped 2.1 percent in April after declining 4.4 percent the month before. On the positive side, permits were unexpectedly strong—suggesting forward momentum for the housing sector. Permits jumped 14.3 percent after a 6.5 percent decrease in March. April’s annualized pace of 1.017 million units was up 35.8 percent on a year-ago basis. Looking ahead, starts in May could rebound on an upward swing in the volatile multifamily component.
Housing starts Consensus Forecast for May 13: 0.955 million-unit rate
Range: 0.900 million to 1.00 million-unit rate
Housing permits Consensus Forecast for May 13: 0.973 million-unit rate
Range: 0.945 million to 1.009 million-unit rate
The FOMC announcement at 2:00 p.m. ET for the June 18-19 FOMC policy meeting is expected to leave policy rates unchanged. However, traders will be looking for any changes in the characterization of the economy and language for guidance—especially for quantitative easing. Also, the Fed will release its quarterly forecast between the announcement and the chairman’s press conference, generally about 2:00 p.m. ET. Changes in the forecasts will get market attention—especially on timing of the next rate change.
Chairman press conference after the FOMC meeting statement is scheduled for 2:15 p.m. ET. Fed Chairman Ben Bernanke conducts a press conference after FOMC meetings in which participants present their quarterly economic forecasts. Bernanke is expected to comment on the forecast and take Q&A. He likely will be grilled on whether there will be an early tapering of quantitative easing.
Initial jobless claims fell 12,000 in the June 8 week to 334,000. Initial claims were down for three of the last four weeks. The 4-week average, at 345,250, was down a very sizable 7,250 in the week, yet it was still trending about 5,000 higher than the month-ago comparison. Continuing claims have been coming down more consistently than initial claims. Continuing claims, however, inched 2,000 higher in the latest available data, which is the June 1 week, but the 4-week average was at a new recovery low, down 13,000 to 2.967 million.
Jobless Claims Consensus Forecast for 6/15/13: 340,000
Range: 333,000 to 345,000
The Markit PMI manufacturing index (final) for May posted at 52.3 versus a mid-month reading of 51.9 and compared to a final April reading of 52.1. These readings were all very similar and point to modest and steady monthly growth. But Markit's sample may be picking up steam in the months ahead based on a 5 tenths gain for new orders to 53.3 and a full 1 point gain for backlogs to 51.2. Order growth reflected strength in the domestic market as new export orders were flat at 49.8.
Markit PMI manufacturing flash index Consensus Forecast for June 13: 52.7
Range: 51.8 to 53.0
Existing home sales in April gained 0.6 percent, following slippage of 0.2 percent the prior month. The April sales pace at an annual rate of 4.97 million is the highest for the recovery and the highest since November 2009. Sales of single-family homes, the most important component in the report, rose 1.2 percent in the month. Supply, which had been very tight, poured into the market during April with 230,000 units added to lift the months’ supply to 5.2 from 4.7 months in March. The median time for a house on the market fell dramatically, to 46 days versus 62 days in March. Prices continued to improve. After jumping 6.2 percent in March, the median price rose another 4.8 percent in April to $192,800 which is the highest level of the recovery. Note that price data in this report, which are not based on repeat transactions, are often volatile.
Existing home sales Consensus Forecast for May 13: 5.00 million-unit rate
Range: 4.95 to 5.07 million-unit rate
The general business conditions index of the Philadelphia Fed's Business Outlook Survey, after two months in the positive zone, fell back in May to minus 5.2. New orders were not strength for Mid-Atlantic manufacturers, at minus 7.9 to indicate deepening monthly contraction from April's minus 1.0 reading.
Philadelphia Fed survey Consensus Forecast for June 13: -1.0
Range: -3.5 to 2.9
The Conference Board's index of leading indicators in April surged 0.6 percent in April after a 0.2 percent decline the month before. The big boost came from housing permits. Also showing strength were financial measures, including credit activity, as well as jobless claims and the stock market. On the negative side were manufacturing measures, which reflect this sector's ongoing bumpy ride, as well as consumer expectations. This latter factor, however, is very likely to turn positive in May judging by the more recent big jump in the consumer sentiment report. Another reading in April’s report included an incremental 0.1 percent gain in the coincident index which points to a sluggish second quarter.
Leading indicators Consensus Forecast for May 13: +0.2 percent
Range: 0.0 to +0.5 percent
Quadruple Witching
R. Mark Rogers is the author of The Complete Idiot’s Guide to Economic Indicators, Penguin Books.
Econoday Senior Writer Mark Pender contributed to this article.
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