The Week in Review

MONDAY, June 7th

Consumer credit increased by $1.0 billion in April as revolving credit balance like credit cards fell $8.5 billion and non-revolving debt like auto loans increased by $9.5 billion. That is consistent with a surge in auto and truck sales in March. Declines in revolving credit balances are not expected to ease anytime soon as consumers continue to unwind household debt load.

TUESDAY, June 8th

The National Federation of Independent Business' small business optimism index increased 1.6 points to 92.2 in May in its highest reading since September 2008 before the financial crisis and credit crunch. The index remains at recessionary levels however, with businesses putting off hiring until there is a more rapid pick-up in economic activity.

WEDNESDAY, June 9th

The MBA mortgage applications index fell 12.2% to 560.9% for the week ending June 4. The purchase index fell 5.7% while the refinance index dropped 14.3%. Mortgage application activity has fluctuated within a relatively narrow range for the past 10 months and remains near the middle of that range reflecting in large part sustained and historically low mortgage interest rates.

The Fed's survey of economic conditions called the beige book showed that economic activity increased modestly across all 12 Fed banking districts in April and May, since the last report was compiled. Housing demand received a boost from the homebuyer tax credit though commercial real estate was still quite weak in most areas. Consumer and business spending strengthened as labor markets improved. On the inflation front prices were described as largely stable. Slow economic improvement combined with low inflation suggests the Fed will hold monetary policy steady for the foreseeable future.

THURSDAY, June 10th

Jobless claims fell 3k to 456k for the week ending June 5. The level of claims remains elevated and declines in the past three weeks have been only marginal indicating stable but not improving labor market conditions. Job losses continue amid sluggish hiring activity.

The federal government ran a $135.9 billion budget deficit in May compared to a $189.7 billion deficit in May one year ago. For the first eight months of fiscal year 2010, the cumulative budget deficit totaled $935.6 billion vs. a $992.0 billion budget shortfall for the same period in FY 2009. The budget deficit has deteriorated sharply in the last two years mainly due to massive increases in government spending. The OMB is projecting another record deficit of $1.556 trillion again this year.

The international trade deficit on goods and services widened to $40.3 billion in April from a trade gap of $40.0 billion in March. Both imports and exports declined slightly on the month but not by enough to reverse a modest upward trend. Trade activity seems to have stalled in April and will not likely contribute and could possibly subtract from second quarter GDP.

FRIDAY, June 11th

Retail sales fell 1.2% in May compared to expectations for a 0.2% increase. The decline was led by a 9.3% drop in sales at building supply stores, though sales at gas stations, auto dealerships and apparel stores were also weak. The sharp decline last month follows eight consecutive months of gains indicating perhaps that the recovery is losing steam. Nevertheless, retail sales are up 6.9% over May of last year.

Consumer sentiment increased to 75.5% in the first part of June from a reading of 73.6% in May. This was the highest level of sentiment since January 2008. Consumer ratings of current conditions and their expectations both rose in the mid-month period. While not fully recovered because of remaining economic uncertainties, sentiment does continue to improve as the economy moves out of recession.