I hate to say I told you so, but I told you so! Yesterday we said the market was up on soft catalyst, that being the Chinese lip service regarding its confidence in European debt. This angered some of our readers with close ties to China. We said specifically, "you are banking on false hopes" if you were buying on that news alone. Given that the economic data was weak, we thought stocks would retrench Friday heading into a long weekend with the trigger happy North Koreans getting antsy.
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Acting as an obstacle to your smooth transitioning into the long weekend, Friday produced four economic reports. Between Personal Income and Outlays, Chicago PMI, Consumer Sentiment and the Farm Prices reports, the market had its hands full. The Dow gave back more than a percentage point, as investors entered the long weekend purposely light.
Personal Income & Outlays
Personal Outlays inched up fractionally (less than 0.1%) in April, falling short of economists' consensus expectations for a 0.2% increase. By this time, we've adequately pounded home the fact that the early April Easter aided March consumer spending while pulling from April. March outlays jumped 0.6% after all, clearly illustrating this effect; though March's big gain followed a rise of 0.5% in February. Moving forward, May's figures should prove revealing, as we move away from the Easter skew. We think the skew is especially clear in spending activity for nondurable goods, which decreased 0.1% in April.
Spending on durable goods was more likely impacted by very specific factors affecting motor vehicles. Durable goods orders still rose 0.1% in April, versus a 3.6% gain in March. In exposing the March driver, we call your attention to the effect the Toyota (NYSE: TM) scandal had on the industry. General Motors and Ford (NYSE: F) took swift action to take market share from Toyota by offering special discounts for drivers who switched from Toyota to the US brands. Honda Motors (NYSE: HMC) took its own steps and Toyota countered. All this price cutting led to a boost in overall sales.
The Core PCE Price index moved higher by 0.1%, versus expectations for the same. Personal Income rose 0.4%, less than economists' expectations for a 0.5% increase. Personal income also rose 0.4 (revised from 0.3%) in March. Goods-producing industries' payrolls increased $5.8 billion, compared with an increase of $4.1 billion in March; manufacturing payrolls increased $4.5 billion, compared with an increase of $1.6 billion. Services-producing industries' payrolls increased $18.6 billion, compared with an increase of $9.6 billion. Government wage and salary disbursements increased $1.9 billion, compared with an increase of $2.9 billion.
Chicago Purchasing Managers Index
After gaining in April to its highest mark since April 2005, the Chicago PMI backtracked a bit in May. The index fell to 59.7, from April's 63.8, which was a full five points higher than March. The consensus pegged May's measure at a higher 62.0, and the employment measure sank to below break-even at 49.2 (50 marks expansionary activity). New Orders remained strong at 62.7, and Production also proved healthy at 61.0. Finally Inventory showed serious signs of restocking activity, as the component measure moved higher to 56.4. Prices Paid remained concerning, as the measure for it fell, but to a still hot 64.0 figure.
The Reuters/University of Michigan Consumer Sentiment Index showed consumer hopes rose in May, but inflation expectations increased even more. The final reading on the May Reuters/University of Michigan Consumer Sentiment Index came in at 73.6, up from April's 72.2. Still, the general consumer feel has not changed much this year, with February and March both ending at 73.6. It seems consumers are unsure more than anything else.
The Current Situation measure stuck at 81.0 in May, equalling April's feeling among consumers. However, Expectations for the future improved, as that index moved to 68.8, from 66.5. Meanwhile, consumers' inflation expectations increased dramatically, with shoppers pegging a 3.2% rise for the next year, versus April's estimate of 2.9%.
Farm Prices & Other
The Department of Energy review of the Deepwater Horizon oil spill led to an emotional hearing, bringing one LA congressman to tears. President Obama ventured to Louisiana to test the waters, and the issue is quickly looking like yet another major failure of modern America in risk management and problem mitigation. Gee, maybe you should have studied in class instead of drinking all week long and cheating your way through college! We have a serious education issue in this country, and a mania with law manipulation and media interpretation. Fix the damn leak already! Focus! Yes, I'm a bit angry.
The Department of Agriculture's Farm Prices data were released as well. Ahead of the Memorial Day holiday, the bond market closed at 2 PM EST.
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