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Many analysts have played up signs of the recession lessening or even of potential recovery – pointing to so-called green shoots. But consumers did not get the memo about the recession easing up. Consumers have stayed on the sidelines and have kept their wallets safely tucked away based on the latest consumer spending numbers.
 Equities took a breather this past week, retreating after two weeks of advances and a gain in sentiment from getting past stress tests for major banks. Several factors came into play. First, investors began to worry about increased supply as many firms – especially financials - are issuing new stock to raise capital. In fact, major banks raised about $30 billion in new capital this past week. Considerable profit taking took hold on Monday, also, after the prior Friday’s stress test related gains.
The biggest decline in stocks, however, was on Wednesday after the Commerce Department announced an unexpected drop in retail sales, calling into question how much the recession is easing. Equities picked and chose which parts of Thursday's jobless claims report to focus on. Although continuing claims surged and hit another record high, equities took heart that initial claims rose only moderately which boosted stocks. But by Friday, markets were soaking in the impact of Chrysler dropping 789 dealerships nationwide and GM announcing it will not renew contracts with some 1,100 dealerships in 2010. Equities, in turn, dipped on the final day of the week.
Equities were down this past week. The Dow was down 3.6 percent; the S&P 500, down 5.0 percent; the Nasdaq, down 3.4 percent; and the Russell 2000, down 7.0 percent.
For the year-to-date, major indexes are mixed as follows: the Dow, down 5.8 percent; the S&P 500, down 2.3 percent; the Nasdaq, up 6.5 percent; and the Russell 2000, down 4.7 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
Treasury yields fell moderately this past week. Rates dipped the most on Monday after comments from Federal Reserve Chairman Ben Bernanke that stress tests conducted on the 19 largest U.S. banks produced “encouraging” results, reducing flight to safety. Also, financial firms issuing stock to boost capital was seen as further stabilizing credit markets.
Rates were little changed on Tuesday despite the Treasury Department announcing a $20.9 billion deficit in the federal budget during the month of April. It was the first shortfall during an April in 26 years, reflecting the recession cutting into revenues and also fiscal stimulus spending.
 An unexpected drop in retail sales for April released on Wednesday also undercut rates as the economy was seen as weaker than believed.
Also, weighing on rates was the view that the Fed, to expand its balance sheet, is buying longer bonds to inject additional liquidity into credit markets.
For this past week Treasury rates were down as follows: 3-month T-bill, down 1 basis point; the 2-year note, down 12 basis points; the 5-year note, down 14 basis points; the 10-year bond, down 16 basis points; and the 30-year bond, down 19 basis points.
 Crude oil prices retreated moderately this past week on negative economic data, lower demand forecasts, on worries that the recession is not easing as much as previously believed, and on a boost in the dollar. Oil also took its cue from equities, dropping on days that stock prices fell.
This past week, the price for West Texas Intermediate was bumped down by April’s drop in retail sales and by OPEC’s ninth consecutive monthly cut in its demand forecast for 2009. Overseas economic growth also came into play as several GDP announcements were quite negative. Coming in negative and worse than expected were declines in GDP for Germany, Italy, and the EMU. The bottom line is that demand was seen to be weaker than expected in coming months both in the U.S. and abroad.
Net for the week, spot prices for West Texas Intermediate dropped $2.29 per barrel to settle at $56.34 – and coming in 61.2 percent below the record settle of $145.29 per barrel set on July 3, 2008.
While there are signs that the recession is easing, the latest numbers indicate that the consumer sector is still pulling back. Until the consumer sector improves, any recovery is going to be lackluster.
 Consumers have been battered by rising unemployment rates and lower credit availability. Retail sales have been abysmal for two months in a row. Overall retail sales fell another 0.4 percent in April after dropping 1.3 percent the month before.
Declines in sales were broad based but led by electronics & appliance stores, gasoline stations, and food & beverage stores.
 Excluding motor vehicles, retail sales posted a 0.5 percent decline, after a 1.2 percent plunge in March. Excluding motor vehicles and gasoline, retail sales fell 0.3 percent after declining 1.0 percent in March.
Overall retail sales on a year-on-year basis in April were down 10.1 percent, down from minus 9.6 percent in March. Excluding motor vehicles, the year-on-year rate worsened to down 7.7 percent from down 6.3 percent in March.
 Consumer spirits improved slightly in early May – perhaps reflecting a rebound in 401(k) monthly statements in the mail. The Reuters/University of Michigan consumer sentiment index rose to 67.9 for a mid-May reading above 65.1 for late April. Not surprisingly, the improvement was centered in the expectations index which jumped nearly 6 points to 69.0. Consumers apparently prefer to look forward than focus on how bad current conditions are. The current conditions index remains very weak at 66.2, actually slipping from month-end April. The bottom line is that consumers are still troubled about the health of the economy and will likely be stingy with spending for some time.
 Lower energy costs kept inflation tame at the headline level in April while tobacco taxes boosted core inflation sharply. The headline CPI for April came in flat, following a 0.1 percent decline in March. A 2.4 percent drop in energy costs kept the overall CPI weak. Meanwhile, core CPI inflation posted a 0.3 percent jump in April, after rising 0.2 percent the month before. But according to the Labor Department, over 40 percent of the gain in the core rate was due to a second consecutive hike in tobacco taxes. Apparently, states are trying to make up lost revenue with these taxes. The tobacco and smoking products index is up 28.8 percent on a year-ago basis.
The 2.4 percent drop in energy costs in April was led by a 2.8 percent fall in gasoline prices in April. While prices have been rising at the pump, the increases have been less than expected by seasonal factors. On a not seasonally adjusted basis, gasoline actually rose 5.3 percent for the latest month. Back to seasonally adjusted numbers, heating oil dipped 2.1 percent while piped gas and electricity declined 2.2 percent. Food prices decreased 0.2 percent in the latest month.
 Other notable components included a 0.4 percent surge in medical care costs and a 0.4 percent drop in recreation prices.
Year-on-year, headline inflation slipped to down 0.6 percent (seasonally adjusted) in March from down 0.4 percent in March. On a year-ago basis, overall CPI inflation is at its weakest since 1955. Meanwhile, the core rate firmed to up 1.9 percent from up 1.8 percent the prior month.
 Producer price inflation in April made a comeback as the overall PPI rebounded 0.3 percent, after falling 1.2 percent in March. This time, energy was not to blame as the boost was led by a 1.5 percent jump in food prices, following two months of decline. Meanwhile, energy actually slipped 0.1 percent, following a 5.5 percent drop in March. The core PPI rate also firmed – to a 0.1 percent rise after no change in March. The core gain matched the consensus projection.
The 1.5 percent surge in food prices was led by a 43.7 spike in egg prices with other foods also contributing to a lesser degree. The jump in egg prices was largely due to difficulty in seasonally adjusting egg prices around Easter. Energy costs inched down 0.1 percent despite a 2.6 percent jump in gasoline prices in April. Residential gas dropped 6.2 percent in the latest month while electricity slipped 0.6 percent.
Helping the core rate to firm were gains in prices for light trucks and passenger cars – up 1.1 percent and 0.2 percent, respectively.
For the overall PPI, the year-on-year rate rose to minus 3.5 percent in March from down 3.6 percent the month before (seasonally adjusted). The core rate year-ago pace eased to up 3.4 percent from up 3.8 percent in March.
 The manufacturing sector may be moving past the worst of the recession. Industrial production in April fell 0.5 percent, following a 1.7 percent plunge the month before. However, the manufacturing component declined a more moderate 0.3 percent, following a 2.1 percent fall the month before. Prior to April, manufacturing had posted sharp declines in five of the previous seven months.
For the other major nonmanufacturing components in April, utilities rose 0.4 percent while mining output dropped 3.2 percent.
 Interestingly, manufacturing actually got a boost from the auto sector – something we may not see again for a little while. Motor vehicles and parts production posted a 1.4 percent gain in April after rising 0.3 percent the prior month. Excluding motor vehicles, industrial production slipped 0.6 percent in the latest month.
Overall capacity utilization in April continued its downtrend, slipping to 69.1 percent from 69.4 percent in March. The April rate was higher than the market forecast for 68.8 percent and again set an historical low for this series which goes back to 1967.
On a year-on-year basis, industrial production in April improved marginally to down 12.5 percent from down 12.6 percent the prior month.
Manufacturing has been on a downtrend since early 2008. Manufacturing output now is 16.0 percent below its recent peak in December 2007. What final products industries fared the worst over the past year' Automotive products are down 24.3 percent, followed by appliances, furniture & carpeting, down 21.3 percent; and construction supplies, down 20.0 percent.
 The headline number added to the list of green shoots advocates but the detail called into question whether the slowing in manufacturing recession will continue. The general business conditions index improved to minus 4.6 in May from minus 14.7 in April. The shipments index actually showed an actual month-to-month increase, coming in above the breakeven level with a 1.3 reading.
But the news was not all on the upside. The new orders index fell back to minus 9.0 in May from minus 3.9 the month before.
Nonetheless, New York State manufacturers see improvement down the road. The six-month outlook picked up notably 43.8 from 33.1 in April. Even though the region's manufacturers are more hopeful than ever that the worst is over, manufacturing likely will continue to contract for a number of months to come but possibly at a slower pace.
 Once again, the devil is in the details. The U.S. trade gap widened – and it was hardly due to buoyant U.S. consumers and businesses boosting imports. That would actually have been a good scenario. The overall U.S. trade gap widened to $27.6 billion from a revised $26.1 billion deficit the month before. But the widening was not due to a rise in imports but due to exports dropping a sharp 2.4 percent. Meanwhile, imports slipped 1.0 percent. Oil imports did rise but were offset by other imports falling. The news for manufacturers is not good as the worldwide recession is cutting into demand for U.S. exports.
 The drop in exports was led by a drop in capital goods excluding autos and also included declines in consumer goods and autos. Modest gains were seen in foods, feeds & beverages and in industrial supplies.
Imports were pulled down by decreases in industrial supplies and in capital goods excluding autos. A moderate rebound was seen in consumer goods but this followed a huge drop the month before. Autos and foods, feeds & beverage imports were little changed but marginally positive.
The bottom line is that recession overseas is likely to keep exports weak for a number of months, damping manufacturing in the U.S.
The recession may be easing but signs of actual recovery simply are not here yet. Given the continued weakness in the consumer sector, the odds of positive economic growth this year have slipped. Recovery appears to be starting in the fourth quarter at the earliest and more likely in early 2010.
This coming week has a relatively light schedule with the only market moving indicator being housing starts on Tuesday. But the release of the FOMC minutes on Wednesday likely will have market attention.
Housing starts fell back 10.8 percent in March, following a 17.2 percent rebound the month before. But going back to January, atypically wet and cold weather in the South depressed starts, leading to the sharp rebound in February – which also was abetted by milder-than-usual weather. Looking ahead, many analysts see a glimmer of hope for housing from the 3.2 percent boost in pending home sales. But supply is still quite bloated and existing homes on the market may be getting heavier with the recent spike in foreclosures. Homebuilders still are likely to keep starts low for some time.
Housing starts Consensus Forecast for April 09: 0.540 million-unit rate
Range: 0.500 million to 0.560 million-unit rate
The Minutes of the April 28-29 FOMC meeting are scheduled for release at 2:00 p.m. ET.
Markets will likely focus on the details of FOMC participants’ discussion on the expansion of the Fed’s balance sheet and for any hints on when the unwinding of this expansion will begin.
Initial jobless claims for the May 9 week jumped 32,000 to a 637,000. The surge in claims likely reflected auto sector layoffs. But continuing claims were even worse for the May 2 week, soaring 202,000 to 6.560 million, the 17th straight rise and another record high.
Jobless Claims Consensus Forecast for 5/16/09: 645,000
Range: 620,000 to 675,000
The Conference Board's index of leading indicators fell 0.3 percent in March, offering no signal of a turnaround in the economy. Components showing sizeable negative contributions were building permits, vendor performance, the factory workweek, and jobless claims. But we are likely to see some improvement with April’s stock market jump.
Leading indicators Consensus Forecast for April 09: +1.0 percent
Range: -0.1 to +1.4 percent
The general business conditions component of the Philadelphia Fed's business outlook survey index for April improved more than 10 points to minus 24.4. Looking ahead, there are signs of possible further improvement in May. The April new orders index rose more than 15 points to minus 24.3. Also, the Empire State manufacturing index already posted a sizeable gain for May, almost climbing back to the breakeven mark.
Philadelphia Fed survey Consensus Forecast for May 09: -20.0
Range: -24.2 to -10.0
SIFMA Recommended Early Close 2:00 ET
Econoday Senior Writer Mark Pender contributed to this article.
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