RTTNews - Reports on consumer confidence next week will show a gentle rise in confidence for May as a whole, but consumer spending remains in stall mode, with auto sales mired near 9 million units, and sluggish chain store sales reports, note the analysts at Global Insight. Home sales can't seem to get much lift either, as we expect a gain in new home sales to be largely offset by a decline in existing home sales.

Q1 is expected to be revised in a positive direction to show a shallower decline of 5.5 percent, but a large portion of the positive revision is due to a smaller estimated decline in inventories. That, however, implies a larger inventory overhang to be worked off in the second quarter.

In other major events, the lengthy GM restructuring process will kick into high gear with an anticipated UAW vote on the proposed new agreement to cut costs and deal with health care and pension liabilities. Even with a positive vote, there is a high likelihood that GM will move to file for bankruptcy on June 1, which is the deadline to finalize re-structuring efforts under terms of the loans from the Treasury.

The Conference Board's Consumer Confidence Index is expected to increase slightly from 39.2 in April to 41.5 in May, as consumers become more optimistic that the economy will begin to recover later this year. This slight improvement will have little impact on spending behavior, which remains cautious. Rising unemployment, tight credit conditions, and depleted household wealth continue to restrain spending, offsetting the benefits of fiscal stimulus and lower energy prices.

Existing home sales continue to be driven by two forces-distressed sales in a few states are driving sales up; a weak economy is driving sales down across most states. In April, we project that weak demand will win this tug-of-war, resulting in another drop in existing home sales.

Durable goods orders should rise 0.8 percent helped by a rebound in defense orders. Orders excluding volatile items like aircraft and defense are starting to cool their rate of decline, and April is shaping up as just a soggy/weak month after a succession of dismal months. Orders for motor vehicles could slip into the black for the first time since last September, but only because recent months have been so atrocious.

The market for single-family homes appears to be stabilizing. Single-family housing starts and permits and builder confidence have improved since January, and were all up in April. Stronger demand (i.e. new home sales) probably accounts for these recent improvements, and we project that new home sales increased to 368,000 units (annualized) in April.

We expect the decline in first-quarter GDP to be revised to minus 5.5 percent from the initial estimate of minus 6.1 percent. The biggest single factor driving the revision is that new data indicate that inventories did not fall as steeply as first estimated. That's a plus for first-quarter growth, but leaves a larger inventory overhang to be worked off in the second quarter. On the final spending side, there should be a small upward revision largely from state and local construction, nonresidential construction, and business equipment spending, all of which fell less steeply than first estimated. In addition, lower imports should mean that the positive foreign trade contribution is even bigger. On the negative side, it seems that personal consumption spending didn't rise at the 2.2 percent rate initially estimated, and will probably be revised to a growth rate just below 2 percent.

The Reuters/University of Michigan Consumer Sentiment Index is projected to average 67.5 in May, down slightly from its preliminary reading of 67.9, but above its April level of 65.1. Although the stock market rally has brightened the outlook for personal finances, consumers remain anxious about job security. The ABC News/Washington Post Consumer Comfort Index took a step back in mid-May, reinforcing our view that the path to recovery in consumer markets will be an uneven one.

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