The U.S. consumer has never stopped acting as if his stock portfolio were compounding at a 20% clip, even as the market fell apart and the economy went south. Next week's heavy flow of economic data will include the latest indication on whether Diamond Jim Public is still spending.
All eyes will be on April's
personal income and consumption numbers, which the Commerce Department will release on Tuesday. Because consumer spending makes up two-thirds of the
gross domestic product, consumption data are critical in assessing that outlook.
After a robust
retail sales reading in April -- it jumped 1.2% after edging up only 0.1% in March -- economists have high hopes that the spending data will confirm that the consumer is buttressing a recovery.
"We should have a strong consumption report," said Ethan Harris, an economist at Lehman Brothers.
Harris expects 0.9% growth in personal spending, above consensus estimates for a 0.7% uptick. The economist forecasts GDP to grow 4% in the second quarter, after expanding at a 5.6% clip in the first. In his view, the consumption data should reveal the benefits of easier fiscal policy on the consumer.
"Following a massive drop in tax payments this April, consumers' bank accounts are in better shape than they usually are at this time of year," said Harris, "We saw it in the retail sales numbers."
The retail data helped alleviate some concerns about the speed of a bounce-back in the economy. "That a recovery is happening -- with the help of aggressive monetary and fiscal policy -- was made very clear by the retail sales report," said Peter Kretzmer, an economist at Banc of America Securities.
Still, the market was rocked last week by fears of terrorism. For the week, the
fell 248.82 points, or 2.4%, to end at 10,104.26, while the
dropped 79.9 points, or 4.6%, to 1,661.5
On Wednesday, the Conference Board will report its May
consumer confidence survey, and the University of Michigan will share its
sentiment index on Friday. Both are expected to have flat readings.
initial jobless claims data -- which come out on Thursday -- are forecast to come in at 415,000, a pretty high level and down only slightly from 416,000 in the previous week. According to Harris of Lehman Brothers, 325,000 to 350,000 would be a more healthy range at this stage in the recovery.
The May Chicago
purchasing managers' index, a gauge of manufacturing activity in the Midwest, will come out on Friday. It is expected to show expansion in the factory sector, consistent with April levels.
Overall, market experts are optimistic about the picture next week's economic reports will paint. "The data should show the economy is coming out of contraction," said Holly Liss, a strategist at Fuji Futures. "It's not as gangbusters as we expected after the first quarter. But it's still a recovery."
Coming out of the Memorial Day holiday weekend, traders expect a low level of activity to continue. "People may nibble at sectors where they see opportunity," said Ray Hawkins, a trader at J.P. Morgan Chase. "But many are comfortable with their positions and may not see a reason to get involved."
Among companies reporting earnings in the coming week are homebuilder
, warehouse retailer
and discount retailer