Why we need to relook at the consumer in this week’s releases

This week’s economic releases

June has been full of record highs for the S&P 500 Index (SPY)—eight to date. The index closed at a record high again of 1962.87 on Friday, June 20. With a general mood of optimism prevailing in stock markets on the economic recovery, the question that must be asked is “where does the consumer fit in?”

Let’s not forget that consumption makes up over two-thirds of the economy. While manufacturing has been the force behind the recovery to date, an uptick in consumption must follow sooner or later for the economy to grow on a sustainable path. Despite labor market improvements, consumer spending trends in 2014 can be described as fickle at best. However, the consumer has resumed car purchases. After the post-polar vortex bump, spending on other items seems to have subsided again. Have consumers conquered the splurge urge, or has there been a change in consumption patterns?

Economic data releases this week

This week is full of indicators, with most of them being measures of national-level economic activity. This series aims to cover the major indicators and analyze their impact on financial markets. Perhaps the most important one, the third and final estimate for first quarter gross domestic product (or GDP) will release on Wednesday, June 25. We’ll be previewing the numbers in Part 3 of this series.

And yes, this series will also cover a preview of the consumer-related indicators due to release this week. Major indicators include Personal Income and Outlays (Part 4), housing sector indicators, namely existing home sales (Part 5), new home sales (Part 6), S&P and Case Shiller Home Price Index (Part 7) and the FHFA House Price Index (Part 8). Housing market indicators are likely to impact homebuilder ETFs like the State Street SPDR Homebuilders ETF (XHB).

Inflation trends

The Personal Income and Outlays report will also provide estimates for the inflation numbers in May. The Change in Personal Consumption Expenditure (or PCE) is the Fed’s favored inflation measure. The Fed uses this measure in determining U.S. monetary policy, which has repercussions on bond markets (AGG), both high-yield (HYG) and investment-grade (LQD). For more information on the inflation impact, please read Part 4 of this series.

Manufacturing sector update

Major indicators from the manufacturing sector this week include the Chicago Fed’s National Activity Index (Part 2), Durable Goods Orders (Part 9), Richmond Fed’s Fifth District Manufacturing Survey (Part 10) and the Kansas City Fed’s Tenth District Manufacturing Survey (Part 11).

To learn about the Chicago Fed’s National Activity Index, please read the second section of this series.