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There were plenty of attention getters this past week—including more news on a pending General Motors bankruptcy, bond market reaction to increased supply of Treasuries, and higher oil prices. But for the best update for getting out of recession, the best news was a more upbeat consumer.
 Equities did quite well for the week and for the month of May, although there was the usual hiccup along the way. Economic news was mostly supportive. Stocks got a boost the first day of trading on Tuesday from an unexpected spike in consumer confidence. The markets on Wednesday were dominated by worries in the bond market that growing supply of Treasuries will not be absorbed well, boosting yields. Equities fell on these concerns despite an improvement in existing home sales. Also weighing on equities were reports from the FDIC that 305 banks were categorized as problem banks as of March 31.
 Equities rebounded on Thursday and Friday. The 7-year T-bond auction went better than expected, soothing the bond market somewhat and lifting stocks. Also boosting stocks were a gain in durables orders and rise in new home sales. Trading was quiet and flat until a last minute rally on Friday, lifted by program trading. General Motor’s pending bankruptcy was closely followed during the week, but markets basically saw an early June filing (probably June 1) as a done deal with little net impact on the overall equity markets.
Equities were up this past week. The Dow was up 2.7 percent; the S&P 500, up 3.6 percent; the Nasdaq, up 4.9 percent; and the Russell 2000, up 0.4 percent.
Turning to monthly numbers, May's equity index gains were the first time stocks have risen for three consecutive months since October 2007.
Equities were up for the month of May. The Dow was up 4.1 percent; the S&P 500, up 5.3 percent; the Nasdaq, up 3.3 percent; and the Russell 2000, up 2.9 percent.
For the year-to-date, major indexes are mixed as follows: the Dow, down 3.1 percent; the S&P 500, up 1.8 percent; the Nasdaq, up 12.5 percent; and the Russell 2000, up 0.4 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Concern over looming supply of Treasuries and large auctions this past week spooked the bond market during the first half of the week as yields jumped sharply, with the long bonds rising the most. In fact, the difference in yields between 2-year and the 10-year bond hit a record this past week. Traders concluded at least temporarily that government efforts to reduce long-term yields will fail. This spread steepened to 2.75 percentage points at Wednesday’s close, topping the previous record of 2.74 percentage points set on Aug. 13, 2003.
 But worries about supply eased Thursday and Friday after Thursday’s 7-year bond auction went well.
While economic data for the week overall supported somewhat higher yields, the big story simply was the sharp swing in concerns over supply. Otherwise supporting a firming in rates were boosts in consumer confidence and sentiment and gains in durable goods orders, existing home sales, and new home sales.
For this past week Treasury rates were mixed as follows: 3-month T-bill, down 4 basis points; the 2-year note, up 2 basis points; the 5-year note, up 14 basis points; the 10-year bond, up 1 basis point; and the 30-year bond, down 4 basis points.
 Oil prices rose substantially this past week, largely on news from OPEC officials. Ahead of the May 28 OPEC meeting, the Saudi oil minister indicated the the cartel’s production should stay put despite signs of rising demand. He also stated that world economies could handle prices between $75 and $80 per barrel. OPEC actual decision to keep production steady further firmed oil prices. Economic news also supported higher prices—especially boosts in consumer confidence and sentiment.
Net for the week, spot prices for West Texas Intermediate jumped $5.29 per barrel to settle at $66.31 – the highest settle since the $70.53 mark seen on November 4, 2008.
The latest economic news shows the recession easing—although slowly. Housing may be nearer to bottom and the consumer is not as negative as at the start of the year.
 When the Commerce Department released its first estimate for first quarter GDP, many were disappointed that the recession’s rate of contraction had not really eased from the deep dip in the final quarter of last year. But with the initial revision, it turns out that the recession had eased a little. The Commerce Department’s bumped up the quarter’s growth rate to a 5.7 percent annualized decline from the initial estimate of a 6.1 percent contraction. The upward revision was primarily due to less negative inventories and a smaller decline in exports. Nonresidential fixed investment, residential investment, and government purchases were little-revised. The first quarter drop in GDP followed a 6.3 percent decrease the previous quarter. Year-on-year growth for real GDP dropped by 2.5 percent, after falling 0.8 percent in the fourth quarter.
On the inflation front, the GDP price index was revised to an annualized 2.8 percent increase which was incrementally lower than the initial estimate of 2.9 percent.
Overall, the latest GDP numbers basically add to the view that the recession is easing—albeit slowly. Still, these incremental improvements lead to gains in confidence—which is a necessary ingredient for getting out of recession.
 It takes a while to discern a new pattern with the extremely volatile new durables goods orders data. But we now seem to have moved beyond the extremely contraction seen in the second half of 2008 and January 2009. Yes, new orders are still volatile but we now have had two moderate gains with only a moderate decline in between. Durables orders are now in a trend for either a slight decline or perhaps holding steady. Either way, it is progress toward getting out of recession. Durable goods orders rebounded 1.9 percent in April, following a revised 2.1 percent drop in March. Excluding the transportation component, new durables orders gained 0.8 percent after declining 2.7 percent the month before.
The rebound in new orders was broad-based but was led by communication equipment, up 6.9 percent, and transportation, up 5.4 percent. Also making gains were fabricated metals, machinery, primary metals, electrical equipment, and “other” durables. The only major industry group to fall in April was computers & electronics which fell 2.7 percent.
The bad news in the report, however, was that companies still appear to be in a mood to cut back on capital spending as new orders for nondefense capital goods fell 2.0 percent after slipping 0.9 percent in March.
Overall, durables orders indicate that the recession in manufacturing is slowing somewhat—and this is good news.
 Volatility is an issue with some economic indicators than others. While durables orders probably top that list, housing sales recently have had a few head fakes, too. But after taking into account the overall trend for several months, both existing and new home sales have been on a flat trend since the end of 2008—at least for now. We may be at a bottom for housing sales. But anyone gets too excited, this is not the same as saying housing has hit bottom. It is still going to take some time for construction to turn around and the same appears to be true for home prices. But focusing on the good news, existing home sales rebounded 2.9 percent in April, after slipping 3.4 percent the month before. The April sales pace of 4.680 million units annualized was nearly flat at minus 3.5 percent. Supply on the market was a negative in the report, rising to 10.2 months at the current sales rate compared to 9.6 months in March.
 New home sales in April nudged back up 0.3 percent after declining 3.0 percent the month before. New home sales came in at an annual 352,000 rate, down 34.0 percent on a year-ago basis. Supply, down 4.2 percent for the month to 297,000 units and the lowest level in eight years, came in at 10.1 months supply compared to 10.6 and 10.8 in the prior two months. The bottom line for new home is that sales have been on a flat trend during 2009 and supply has eased slightly.
 We just got in four reports on home prices—but two were for April data and two were for March. The most recent numbers were for the National Association of Realtors’ existing home sales report and for Census’ new home sales report. The median sales price for existing homes rebounded 3.7 percent in April after a 3.0 percent drop the month before. Median prices for new homes edged up 0.2 percent, following a 1.0 percent increase in March. A caveat for both of these series is that they are not based on repeat sales, comparing prices for same houses. Median prices can be affected by changes in the mix between high end and low sales as well as changes by region.
The Case-Shiller composite10-city index for March fell the same 2.1 percent it did in February. The composite 20-city index fell by a nearly identical 2.2 percent both months. The Federal Housing Finance Agency’s (FHFA) house price index dropped 1.1 percent in March after a 0.2 percent gain the month before. Both of these reports use repeat sales for price changes. The FHFA measure is based only on mortgages with ties to government sponsored mortgage agencies while Case-Shiller covers the whole spectrum of types of mortgages but only for metropolitan areas.
 Year-on-year rates continue to show little to no improvement but the U.S. average may be at or near bottom—although rising foreclosure rates put this conclusion at risk. Importantly, this bottom is merely for the rate of decline—not for actual price levels. Also, there are huge differences among metropolitan areas. The median price from the existing and new home sales reports were down 15.4 percent and 14.0 percent, respectively, for April. The FHFA and Case-Shiller 10-city composite were down 7.3 percent and 18.6 percent, respectively, for March.
But according to the Case-Shiller report, rates of decline in hard-hit areas are deepening, not improving. Phoenix, Las Vegas, San Francisco and Miami are posting mid-single digit monthly declines with year-on-year declines roughly 30 percent. Minneapolis is now sinking badly, down 6.1 percent in the month for a 23.3 percent year-on-year decline. Like Minneapolis, Detroit and New York also posted record monthly drops.
The bottom line for home prices is that whether we have reached the bottom in actual prices remains uncertain due to a recent increase in foreclosure rates.
 Probably the most profound economic news this past week were further gains in consumer confidence and consumer sentiment readings which just very few months ago were at or near historic lows. The Conference Board's consumer confidence index jumped in a roughly 15-point move for the second straight month, coming in at a much higher-than-expected 54.9 in May. All the gain was in the expectations component which rose more than 20 points for a second straight month. The gains in expectations swept across all readings with business conditions, employment, and income all showing many more optimists and many fewer pessimists.
The boost in confidence certainly was not due to any notable improvement in current conditions. The current conditions index was barely up and business conditions were still described as bad by 45 percent of the sample.
The Reuters/University of Michigan consumer sentiment index also continued to rise further from bottom, gaining 3.6 points from April to come in at 68.7 for May. Improvement was split evenly between assessments of current conditions and of future conditions—a stark contrast with the consumer confidence report where current conditions are notably lagging expectations. The bottom line is that consumers are a little more upbeat about the economy in coming months. Almost certainly, consumers will still be deleveraging (paying down debt) for some time and will be more cautious about spending, but the confidence news suggests that consumers will not stay completely on the sidelines as the rest of the economy eventually improves.
The economy is still very much in recession but there have been additional signs that the rate of contraction has eased slightly. We may be seeing the very, very beginning of housing recovery with the bottoming of home sales. But the housing sector overall has a long way to go before this sector is in full recovery—and there could be setbacks from higher foreclosures. Importantly, consumers believe there is light at the end of the tunnel. That is a very big step toward recovery.
This coming week, the focus of market moving indicators is on the consumer sector with the week bracketed by personal income on Monday and the employment situation on Friday. We also get an update on manufacturing with the ISM report on Monday.
Personal income fell 0.3 percent in March, following a 0.2 percent dip the prior month. But declines in the all-important wages & salaries component were even worse, dropping a sharp 0.5 percent, after falling 0.4 percent in February. And consumer spending turned negative again with a 0.2 percent decrease in March. PCE inflation was mixed as the headline PCE price index was unchanged while the core PCE price index posted another 0.2 percent increase in March. Looking ahead, we may get some easing in the drop in income as aggregate weekly earnings for production workers (from the latest employment report) rose 0.1 percent in April. But in recent months, wages & salaries have been much weaker than production worker earnings. Don’t look for healthy spending numbers in April. We already have seen a 0.4 percent drop in retail sales. Inflation numbers are likely to be mixed. April’s headline CPI was flat but the core rate jumped 0.3 percent. The PCE price index closely tracks the CPI.
Personal income Consensus Forecast for April 09: -0.2 percent
Range: -0.5 to +1.0 percent
Personal consumption expenditures Consensus Forecast for April 09: -0.2 percent
Range: -0.3 to 0.0 percent
Core PCE price index Consensus Forecast for April 09: +0.2 percent
Range: -0.2 to +0.2 percent
The Institute for Supply Management's manufacturing index in April rose to 40.1 from 36.3 in March. While April’s figure was still well below the breakeven point of 50, it headed in the right direction. We may get more improvement in May as the new orders index jumped 6 points in April to 47.2. Backlog orders also improved.
ISM manufacturing index Consensus Forecast for May 09: 42.0
Range: 38.6 to 44.5
Construction spending in March rebounded unexpectedly but housing outlays are still on a downtrend. Construction outlays posted a 0.3 percent gain in March, following a 1.0 percent decrease the month before. The rebound was led by private nonresidential spending with the public component also advancing. However, the private residential component continued to fall. With housing starts falling 12.8 percent in April after an 8.5 percent decline the month before, we are likely to see weakness in at least the residential component of April construction outlays.
Construction spending Consensus Forecast for April 09: -0.8 percent
Range: -2.2 to +0.2 percent
Sales of domestic-made motor vehicles were unchanged in April, at a 6.9 million unit adjusted annual sales rate. Sales at now bankrupt Chrysler showed severe month-to-month contraction. However, imports slipped back to a 2.5 million pace, sizably down from 2.9 million in March. With Chrysler in bankruptcy and GM seen headed that way in May, sales are likely to be weak.
Motor vehicle domestic sales Consensus Forecast for May 09: 7.0 million-unit rate
Range: 6.5 to 7.2 million-unit rate
Factory orders fell 0.9 percent in March showing an even mix between a 0.8 percent decline in durables (second estimate) and a 1.0 percent decline in nondurables. More recently, durables orders for April rebounded 1.9 percent in April, following a revised 2.1 percent drop in March. The latest durables number will make for a boost in overall new factory orders in April unless there is an unexpected plunge in nondurables orders—which is not likely given recent price hikes for oil.
Factory orders Consensus Forecast for April 09: +1.1 percent
Range: -0.2 to +1.6 percent
The composite index from the ISM non-manufacturing survey rose nearly 3 points in April to 43.7. This improvement may continue in May as the new orders index in April jumped more than 8 points to 47.0, almost reaching the breakeven point.
Composite index Consensus Forecast for May 09: 45.0
Range: 44.0 to 47.0
Initial jobless claims eased in the May 23 week but the overall report points to a rising pool of unemployed. Initial claims came in at 623,000, down 13,000 from the prior week. But the alarming news in the report was a sizable 110,000 jump in continuing claims for the May 16 week. The gain was the 19th in a row and at 6.608 million sets another record high.
Jobless Claims Consensus Forecast for 5/30/09: 620,000
Range: 615,000 to 630,000
Nonfarm productivity and labor costs in the initial estimates for the first quarter showed improvement from the fourth quarter. First quarter productivity edged up at a 0.8 percent annualized rate, following a 0.6 percent decline in the fourth quarter. Meanwhile, unit labor costs eased to an annualized 3.3 percent after rising 5.7 percent in the fourth quarter. The improvement in both measures was due to a larger drop in hours worked and a less negative decline in output.
Looking ahead to revised estimates for the first quarter, we may see incrementally better numbers for productivity and costs based on the small upward revision to first quarter GDP.
Nonfarm Productivity Consensus Forecast for revised Q1 08: +1.2 percent annual rate
Range: +0.3 to +1.5 percent annual rate
Unit Labor Costs Consensus Forecast for revised Q1 08: +2.8 percent annual rate
Range: +2.0 to +3.5 percent annual rate
Nonfarm payroll employment fell a very steep 539,000 in April, following a 699,000 plunge in March. The good news was the contraction in jobs eased somewhat. The big question for the May employment report is whether the shrinkage in losses will continue. We saw deceleration in the pace of job cuts in February only to have it reversed in March. A second slowing in a row in payroll layoffs will be a boost to equities. On the wage front, average hourly earnings were very weak in April, rising only 0.1 percent and May’s number likely will be sluggish, too. Turning to the household survey, the unemployment rate jumped 4 tenths to 8.9 percent in April. If this rate doesn’t ratchet upward again in May, it will be a big surprise as it is hard to find an economist not calling for further increases in the unemployment rate for some time.
Nonfarm payrolls Consensus Forecast for May 09: -530,000
Range: -625,000 to -495,000
Unemployment rate Consensus Forecast for May 09: 9.2 percent
Range: 9.1 to 9.4 percent
Average workweek Consensus Forecast for May 09: 33.2 hours
Range: 33.1 to 33.3 hours
Average hourly earnings Consensus Forecast for May 09: +0.2 percent
Range: +0.1 to +0.3 percent
Consumer credit outstanding continues to show consumers in a deleveraging mood, along with credit card companies cutting back on credit lines. Consumer credit outstanding fell $11.1 billion, following an $8.1 billion contraction in February. The contraction for March was split evenly between revolving credit (largely credit cards) and non-revolving credit (primarily car loans). We may see some improvement in March—at least in the non-revolving portion—since motor vehicle sales rebounded modestly that month.
Consumer credit Consensus Forecast for March 09: -$7.0 billion
Range: -$11.0 billion to -$4.7 billion
Econoday Senior Writer Mark Pender contributed to this article.
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