Bill Losey’s Weekly Economic Update for July 5, 2011

SOFT SPENDING DURING THE SOFT PATCH
After ten consecutive months of gains, personal spending was flat for May and actually retreated 0.1% when adjusted for inflation. Weak auto sales may have been the biggest influence. Economists polled by Reuters had projected a 0.1% gain in the indicator. The Commerce Department did note that personal incomes rose 0.3% for the second straight month. The personal consumption expenditures (PCE) price index showed a 2.5% year-over-year advance.

ISM INDEX SURPRISES
Analysts thought the Institute for Supply Management’s factory index would decline in June. It didn’t. The index rose from May’s 53.5 mark to 55.3. The U.S. was the only nation in the world whose benchmark manufacturing PMI rose last month.

CONSUMER CONFIDENCE WANES
This was not surprising given recent headlines. The University of Michigan’s final June consumer sentiment poll slipped to 71.5 from May’s 74.3 reading, and the Conference Board’s June consumer confidence index also declined to 58.5 from last month’s revised 61.7 mark.

HOME PRICES, HOME SALE AGREEMENTS INCREASE
The National Association of Realtors announced that pending home sales were up 8.2% for May, rebounding from April’s 7-month low. There were 17.0% more sales contracts signed last month than in June 2010, which represents the trough for pending home sales since the real estate downturn began. You can’t read too much into the April edition of the S&P/Case-Shiller Home Price Index; home prices in 20 major cities were up 0.7% overall, but it was the start of homebuying season.

WALL STREET SHIFTS INTO RALLY MODE
Equities looked far more attractive after Greece passed austerity measures and U.S. indicators showed improvement. Here are the five-day gains from the stock market’s best week in nearly two years: NASDAQ, +6.15% to 2,816.03; S&P 500, +5.61% to 1,339.67; DJIA, +5.43% to 12,582.77.