Week in Review: June Ushers in Additional Unwelcome News

Michael Sullivan, CFA

May reports for unemployment, vehicle sales, and manufacturing disappoint, as does a revision down for 1Q 2012 GDP. The major equity markets slid last week and the 10-year Treasury Note yield hit an all-time low last Friday. The May services sector report and April international trade report are to be released later this week. Next week we expect releases for May U.S. retail sales, domestic inflation, industrial production, and the latest bi-weekly consumer sentiment report.

First, let’s recap news from the past week:

• The May employment report was a major disappointment. The U.S. unemployment rate increased to 8.2% in May from 8.1% in April, the first uptick since last June. In addition, U.S. employers added only 69,000 jobs to their payrolls in May, the fewest in a year, and the previous two months were revised downward by an additional 49,000 jobs.
• May vehicle sales also missed forecasts. Sales for May were an annualized 13.8 million units, short of the 14.5 million estimate, and the lowest monthly level so far in 2012.
• In other negative news, the Institute of Supply Management, or ISM, manufacturing index also declined for the month, from 54.8 in April to 53.5 in May. And the Conference Board’s U.S. consumer confidence index for May plunged almost four points to 64.9.
• On a more neutral front, for the month of April, U.S. personal income rose 0.2% and consumer spending was up 0.3%. Additionally, U.S. real gross domestic product, or GDP, for 1Q 2012 was revised downward to an annual rate of 1.9%, from an initial estimate of 2.2%. These results were consistent with market forecasts.
• Overall, the major equity markets had another tough week, as the Dow Jones Industrial Average dropped 2.7% and the Standard & Poor’s 500 fared even worse, off a little more than 3.0%. Both indices have now declined in four of the past five weeks, and as of Friday’s close, the Dow is in negative territory for 2012. Market volatility was not confined to stocks, as the yield on the 10-year Treasury Note plummeted 27 basis points for the week, closing Friday at an all-time low of just 1.47%.

Sources of chart data: Yahoo Finance, Freddie Mac, MarketWatch, Thomson Reuters, and The Wall Street Journal

Now let’s look at the economic events for the next two weeks:

• After the previous week’s deluge of data, the week of June 4 is expected to be extremely light in terms of news.
• On Tuesday morning, the ISM non-manufacturing, or service index, for May is announced.  The service index is expected to be fairly close to last month’s reading of 53.5.  Recall that any readings above 50 indicate expansion in the service sector.
• On Friday morning, the U.S. trade balance report for the month of April is released.  The U.S. trade gap for March widened significantly to $51.8 billion, but the forecast for April shows a trade deficit that narrows to approximately $49.0 billion.
• Looking at the week of June 11, things pick up quite a bit in terms of economic reports. 
• Wednesday morning brings the U.S. retail sales report for May. Sales disappointed in April, up only 0.1%, and the preliminary forecast for May shows a potential month-over-month decline. 
•  The biggest item to watch next week is inflation.  First up on Wednesday morning is the Producer Price Index, or PPI.  For the month of April, headline PPI declined 0.2%, and the consensus for May is a steeper drop of 0.8%.  Then, on Thursday morning, we will see the Consumer Price Index, or CPI.  For the month of April, headline CPI was unchanged, and the consensus for May is a monthly fall of 0.3%. 
• Additional items to keep an eye on include industrial production for the month of May, and the bi-weekly consumer sentiment index from the University of Michigan, both of which are available on Friday morning, June 15.

This information is not intended to serve as investment advice. Investments are subject to market risk.