(The Conference Board) Last week: The U.S. economy has some momentum behind it. That was the signal last week from The Conference Board Leading Economic Index® (LEI). However this week's report on new orders for durable goods suggested the path is already choppy and could turn choppier this summer. On the plus side, the price of gasoline should start to slowly come down after Memorial Day. And continued strong profits through the first quarter suggest there is money to invest in both capital and human capital. But is there the economic sentiment to commit cash for investing and hiring? And will consumers be in the mood to spend this summer, on long delayed household purchases and/or on vacations?

Tuesday, May 31

10:00am The Conference Board Consumer Confidence Index®

Consumer expectations (about job or income growth) remain relatively low. Concerns about where gas and food prices are headed have added to household worries. Did any of this change in May?

Wednesday, June 1

10:00am ISM Index (Institute for Supply Management)

This survey of purchasing managers has been gaining some solid footing in recent months, reaching a level of 60.4 in April. The recent dip in industrial production and in the ordering rate runs counter to this sentiment. It would not be surprising if the latest survey also shows a break in the recent trend. If so, it would likely be just that — a one-month break — not necessarily the start of any retreat.

10:00am The Conference Board Help Wanted OnLine™ (HWOL)

The forward indicators of labor market activity have been pointing to improved growth. Was that still the signal in May?

Vehicle Sales

The pace of vehicle buying has remained surprisingly strong. Given high gas prices, some are replacing old, inefficient vehicles. Some of the buying activity also results from consumers finally moving on long-delayed plans. With job growth now more moderate, there is little reason to think sales slowed from the roughly 10 million annual pace in March and April. In fact, auto makers are taking advantage of this market and trying to exert some pricing power. There has been enough success to allow some auto makers to pay down debt.

Friday, June 3

8:30am Employment Situation (Bureau of Labor Statistics)

The pace of economic activity this spring and summer could be strong enough to open up about 175,000–200,000 jobs per month. That is not only the view of professional economic forecasters but, based on the Consumer Confidence Index, the view of the average American household. Manufacturing remains slow and in fact could even moderate further. Construction is still weak due to the lack of any strength in either residential or commercial real estate. The big key is in the "core" service sector (which excludes health and education). It has been driven by better retail activity, which in turn reflects improved confidence, jobs, and even incomes. There is little evidence that hiring is about to pick up even further. In fact, the pace of hiring likely will turn choppy over the next few months.

Regionally, the labor market remains consistently weak in the two western regions, hard hit as they have been by the continued housing slump. Some markets in the Midwest may see the impact of bad weather and flooding. Elsewhere in the South there are some improving metro areas like Houston, Jacksonville, and Charlotte. There could be some improvement in the Pacific Northwest, offsetting sustained weak conditions in California and in the Rockies. Conversely, there is no sign of strengthening generally in the Northeast corridor.

THE SITUATION ABROAD

Global trade rose by 1.4 percent in March. It had only increased by 0.4 percent in February, after a 1.7 percent jump in January. Thus, even with the "Arab Spring" and the disasters in Japan, trade was increasing briskly. Going forward, there are some indications that the rise in global industrial output could begin to moderate this summer. If that happens, trade might slow in turn. However, trade from developed countries is already growing much more moderately than trade from emerging countries — 0.5 percent in March versus 2.4 percent. If China and India slow their overall economic growth, to avoid overheating, the trade growth differential would narrow.

FACT OF THE WEEK

19 percent. The price of gasoline typically peaks around Memorial Day, moderates over the summer and into autumn before starting to climb again in late winter and spring. The peak in price this year is a little above $4/gallon. Gallup asked in a poll what consumers would do if prices rose significantly above $4/gallon. Not surprisingly, many said they would look for a vehicle with better mileage, though some responded that they would look to move so as to shorten commutes. But 19 percent said they would consider taking public transportation. Interestingly, when gasoline first went up to $4/gallon several years ago, there was a 9 percent jump in mass transit ridership. Apparently, a return to $4/gallon might result in doubling the ridership increase.

QUESTION OF THE WEEK

While there is a lot of focus on federal government spending and debt, the states are mired in a dreadful fiscal quagmire. Is it getting worse? When will it start to turn around?

The data suggest it already has. Many states and local governments have spent the past three years trimming spending and adjusting tax rates, as they are required by law to balance their books. A second factor that has helped is a recovery now approaching its second anniversary. Moreover, the recent pickup in job growth has given a little boost to income gains, and therefore to income taxes. Meanwhile profit growth has been strong, and so too has revenue from business taxes. The result for the first quarter is that consumer income was about 8 percent higher than one year ago. State revenue has increased by about 9 percent while spending has actually declined by a little over 1 percent.

Is the problem solved? No. While improvement has started, many states are still looking at further spending and revenue steps in order to avoid running a deficit in the fiscal year to start this July. But the steps they have already taken, and the improved economic environment, mean additional steps, while painful, may be easier than recent belt tightening. The bigger issue now is what impact action at the federal level may have on individual state and city budgets. Finally, the most important issue is the impact on the private sector from all this activity in the public sector. That story is yet to be written.