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This past week, a moderation in job losses added to the view that the recession is easing. But the labor data were mixed overall as the unemployment rate jumped in the latest month. Other indicators also were mixed on net but still point to a slow easing in the economic downturn. Equities had a good week while the bond market showed the Fed some muscle, boosting yields despite the Fed’s intent to keep rates down.
 Equities ended the week up notably. While there were quite a few economic stories, one of the bigger ones was the one that wasn’t—at least mostly wasn’t. General Motors filed for bankruptcy as expected this past Monday, and markets reacted as if the news was six months old. Focus ended up on newer news, including unexpectedly strong reports on personal income, ISM manufacturing, construction outlays, and even motor vehicle sales. Later in the week, equities were boosted by a gain in pending home sales and by declines in both initial and continuing jobless claims. Friday’s employment report was initially viewed as very positive with a much-lower-than-expected drop in payroll employment. But stock gains were muted or even turned slightly negative as traders focused more on the spike in the unemployment rate. Nonetheless, equities traders have concluded that the economy is moving closer to the end of recession and are buying stocks in advance of the actual turning point.
Equities were up notably this past week. The Dow was up 3.1 percent; the S&P 500, up 2.3 percent; the Nasdaq, up 4.2 percent; and the Russell 2000, up 5.7 percent.
For the year-to-date, major indexes are mixed as follows: the Dow, down 0.2 percent; the S&P 500, up 4.1 percent; the Nasdaq, up 17.3 percent; and the Russell 2000, up 6.2 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Bond yields rose sharply this past week—and the gains were largely driven by economic news and continuing worries over supply. Rates jumped the most after the better-than-expected May jobs report on Friday. Other rate increases were seen on Monday and Thursday with the same reports that boosted stocks also lifting bond yields. Reversal of flight to safety also played a role during most of the week.
Overall, bond traders appear to be pushing for a flattening of the yield curve. Rates rose the most for mid-range maturities—2-year, 5-year, and 10-year Treasuries. Of course, the short end is still being held hostage by the Fed’s target of zero to 0.25 percent for the fed funds rate. With equities increasingly looking like a bull market, bond traders are demanding higher rates of return despite the threat of the Fed jumping in and making more purchases of longer-term Treasuries.
For this past week Treasury rates were up as follows: 3-month T-bill, up 5 basis points; the 2-year note, up 38 basis points; the 5-year note, up 49 basis points; the 10-year bond, up 39 basis points; and the 30-year bond, up 31 basis points.
 Crude oil prices drifted further upward this past week despite an unexpected jump in supplies. Economic news provided the key lift, notably with good numbers for personal income, ISM manufacturing, and jobless claims. Oil traders increasingly see West Texas Intermediate in the $80 per barrel vicinity by year end. Adding to this view and supporting price gains this past week was a forecast from Goldman Sachs calling for $85 per barrel at year end. The week’s gain would have been stronger if not for an unexpected increase in supply announced on Wednesday and a boost in the dollar on Friday (easing crude prices).
Net for the week, spot prices for West Texas Intermediate rose $1.91 per barrel to settle at $68.22.
There was good news and there was bad news on the economic front this past week. But that is what one should expect when getting near a turning point in the economy. While “mixed” is the operative word on the data, net it appears that we are one step closer to the recession bottom.
 The big question is whether the recession is easing—and the latest jobs report gave mixed results. Payroll employment in May was unexpectedly and significantly less negative than in recent months. But the unemployment rate also was a sharply higher than projected. Nonfarm payroll employment in May fell only 345,000. The number of job losses has actually shrunk four months in a row since January’s 741,000 plunge.
Also, April and March declines of 504,000 and 652,000, respectively, reflect upward revisions of 35,000 for April and 47,000 for March for a net gain of 82,000. For the latest month, losses were widespread in both goods-producing and services-providing industries.
By major categories, goods-producing jobs fell 225,000 in May, led by a 156,000 drop in manufacturing employment with motor vehicles & parts down 30,000. Construction declined 59,000 while natural resources & mining decreased 10,000 in the latest month. Service-providing payrolls fell only 120,000 in May after dropping 230,000 the month before. The latest decline was led by a 51,000 decline in professional business services, a 30,000 fall in financial activities, and a 22,000 decrease in wholesale trade.
The good news for the Fed is that wage inflation remained very soft in May as average hourly earnings posted a 0.1 percent gain, matching the rise in April. The earnings number indicates that wage inflation is not yet a threat to the Fed’s currently easy monetary policy. On a year-ago basis, average hourly earnings slipped to 3.1 percent in May from 3.2 percent the month before. This is substantially below the cyclical peak of 4.3 percent seen in December 2006.
 The really bad news came from the household survey portion of the employment report. The civilian unemployment rate jumped another five tenths to 9.4 in May. While there is speculation that the spike in unemployment is largely due to college and high school graduates not being able to obtain employment and the difficulty in seasonally adjusting jobless numbers this time of year, the boost in unemployment is still disconcerting. The May rate is the highest since 9.5 percent last seen in August 1983.
Adding credence to the view that the spike in the unemployment rate is a problem related to younger members of the labor force were age details in the rate. The unemployment rate for teenagers spiked 1.2 percentage points to 20.7 percent in May. The rates for adult men and for adult women rose 0.4 percentage points each to 9.8 percent and 7.5 percent, respectively. If the jump in unemployment is being skewed by a seasonal surge in teenage unemployment, we should see some reversal in August and September when schools reopen.
While the rise in the unemployment rate is a little worrisome, it should be offset by a softer contraction in payroll jobs and upward revisions to April and March jobs. While we certainly are not in recovery yet, the May employment report appears to put the economy slightly closer to when that happens.
 Not only was the employment report mixed, but so was the personal income report. The headline number was fantastic (at least relative to the times) but the details indicate that the latest report was underwhelming.
Personal income in April unexpectedly jumped 0.5 percent in April, following a 0.2 percent fall in March. However, the spike in personal income was led by an 8.6 percent surge in unemployment insurance benefits, largely reflecting provisions of the American Recovery and Reinvestment Act of 2009. Also, rental income rebounded 3.1 percent after several months of decline.
 In contrast, the wages and salaries component was unchanged, after a sharp 0.6 percent plunge in March. For those who were running out of unemployment benefits, the extended benefits were clearly a welcome relief. But with wages & salaries growth sputtering, consumers are going to be reluctant to do too much discretionary spending.
And spending has been disappointing. Consumer spending continued to retrench with a 0.1 percent dip after contracting 0.3 percent in March. The latest decline reflected a 0.6 percent drop in durables and a 0.6 percent fall in nondurables. Services spending increased 0.3 percent.
 PCE inflation was mixed. The headline PCE price index edged up 0.1 percent, following no change in March. In contrast, the core PCE price index firmed to a 0.3 percent boost in April after rising 0.2 percent in March. Headline PCE inflation eased to 0.2 percent from 0.4 percent the previous month. However, year-ago core PCE inflation firmed to 1.9 percent from 1.8 percent in March. The rise in core inflation over the last several months may give fodder to Fed District Bank presidents that the Fed should think about cutting back on quantitative easing sooner than later.
 Even though income and employment remain soft, motor vehicle sales rebounded in May, likely reflecting huge discounts by auto dealers. Combined domestic and import sales rose to 9.9 million units annualized from April's 9.3 million. Light truck sales made a significant comeback, rising 9.1 percent for the month to 4.9 million units as sales incentives apparently offset a recent jump in gasoline prices. The May boost in total motor vehicle sales is setting up expectations that overall retail sales will be up after two disappointing declines in a row.
 While the jobs report got the most attention this week in terms of giving the markets an update on the consumer sector, the lesser-followed consumer credit outstanding report provided some disconcerting news. Consumer credit contracted very severely in April, dropping $15.7 billion. The drop was about split evenly between revolving credit, down $8.6 billion, and nonrevolving credit, down $7.1 billion. The latest overall decline in consumer credit followed a $16.6 billion plunge in March. Consumer credit has contracted three months in a row and in seven of the last nine months. Banks and credit card companies have been tightening available credit while consumers have pulled back on spending—either due to job loss or the fear of it. The only good news about this report is that the numbers are somewhat old. The more recent payroll employment numbers and jobless claims suggest that the credit contraction might be easing in coming months.
 Based on the latest ISM report, manufacturing is slowly pulling out of recession. The manufacturing Purchasing Managers’ Index rose to 42.8 in May from 40.1 in April. Although the latest reading is still in negative territory, it is the highest level since September 2008. But the biggest news was a sizeable jump in the new orders index to 51.1 from 47.2 in April. The latest figure was the first time in 17 months that this index has topped the 50 breakeven mark, indicating actual growth in new orders.
The prices paid index rose sharply in May to 43.5 from 32.0 in April. This heavily reflects firming in commodity prices on the belief that the recession is easing and that economic growth is not far down the road.
 The ISM's non-manufacturing report did not show the dramatic improvement as seen in its manufacturing report. But at least movement was in the right direction. The non-manufacturing composite index edged up 3 tenths to 44.0 in May. This is the best reading since October 2008 which came in at 44.6.
But in contrast to the manufacturing survey, the ISM non-manufacturing new orders index declined to 44.4 from 47.0 in April. The backlogs index also fell back, slipping 4 points to 40.0 in May.
As with the ISM manufacturing survey, price contraction slowed with the prices paid index rising nearly 7 points to 46.9.
 While it’s going to take many months for a full recovery in overall housing, there are signs that we may be at bottom on the sales portion of the industry. The National Association of Realtors’ Pending Home Sales index which jumped a much sharper-than-expected 6.7 percent in April. The latest gain followed a 3.2 percent boost in March and 2.0 percent increase in February. The year-on-year rate is now positive and improving, coming in at 3.2 percent in April, compared to 1.1 percent in March.
The economic news was mixed this past week but the net outcome is that the economy is approaching the bottom of recession as the rate of contraction slows. We are seeing very early signs of recovery in housing (just the sales portion—not the construction aspect). But indications are that the consumer sector is going to remain sluggish for a while.
It’s a relatively light week for economic news but there are a couple of standout market movers—international trade on Wednesday and retail sales on Thursday. Both will get market attention as updates on global demand and consumer health in the U.S. Also, the Fed’s Beige Book is released at mid-week.
The U.S. international trade gap in March widened to $27.6 billion from $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 March report paints a picture of contracting demand worldwide. Looking ahead, we may say a widening in the April gap due to higher oil prices boosting overall imports. But there is a good chance that we’ll see a further deterioration in both exports and nonoil imports.
International trade balance Consensus Forecast for April 09: -$28.5 billion
Range: -$31.0 billion to -$26.1 billion
The Beige Book, prepared for the June 23-24 meeting, will be watched for more green shoots. Will there be more signs of labor markets declining more slowly' Another key issue will be reports on consumer spending and housing activity.
The U.S. Treasury monthly budget report posted a record $20.9 billion deficit in April, a month that since 1983 (not long after the end of the 1982 recession) has seen nothing but budget surpluses. Purchases of agency debt totaled $11.5 billion in the month with TARP-based outlays totaling $3.2 billion. We are likely to see more of the same for May as revenues ease and bailout and stimulus spending continue. For perspective, the month of May typically shows a moderate deficit for the month. Over the past 10 years, the average deficit for the month of May has been $47.4 billion and $59.7 billion over the past 5 years.
Treasury Statement Consensus Forecast for May 09: -$180.0 billion
Range: -$216.0 billion to -$180.0 billion.
Retail sales fell another 0.4 percent in April after dropping 1.3 percent the month before as consumers retrench due to rising unemployment and tighter credit. Declines in sales were broad based. Excluding motor vehicles, retail sales posted a 0.5 percent decline, after a 1.2 percent plunge in March. Looking ahead, however, we may see an autos-led rebound in May retail sales as unit new motor vehicles sales rose 6.4 percent to 9.91 million units annualized, according to auto manufacturers. Also, higher gasoline prices likely helped bump up overall retail sales for May. The big question is how did retail sales do outside of autos and gasoline—and the latest reports from department stores suggests a down month.
Retail sales Consensus Forecast for May 09: +0.6 percent
Range: -0.1 to +1.3 percent
Retail sales excluding motor vehicles Consensus Forecast for May 09: +0.3 percent
Range: -0.2 to +1.2 percent
Initial jobless claims improved in the May 30 week, falling 4,000 to 621,000 from a revised 625,000 for the prior week. The bigger news, however, was that continuing claims ended more than four months of uninterrupted weekly gains, dropping 15,000 in the May 23 week to 6.735 million. No one expects hiring to turn positive anytime soon, but if both initial claims and continuing claims continue to edge downward, that will be significant progress toward the bottoming of the recession.
Jobless Claims Consensus Forecast for 6/6/09: 625,000
Range: 606,000 to 640,000
Business inventories fell 1.0 percent in March, but the bad news was that business sales dropped an even steeper 1.6 percent in the month. The stock-to-sales ratio was unchanged at a heavy 1.44. More recently manufacturers’ inventories fell 1.0 percent for April while wholesaler stocks will be released Tuesday, June 9.
Business inventories Consensus Forecast for April 09: -0.8 percent
Range: -1.2 to +0.9 percent
The Reuter's/University of Michigan's Consumer sentiment index jumped sharply in May to 68.7, up more than 3-1/2 points from April. Improvement was evenly split between the report's two components: the assessment of current conditions and the assessment of future conditions. Looking ahead, an easing contraction in jobless claims and gains in the stock market could keep sentiment on the upswing. But higher gasoline prices could dampen consumer spirits.
Consumer sentiment Consensus Forecast for preliminary June 09: 70.0
Range: 65.0 to 71.0
Econoday Senior Writer Mark Pender contributed to this article.
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