Why are Americans Down?

What’s going on with the American consumer? Most economists thought that the plunge in energy prices would eventually show up in a little extra spending elsewhere in the economy. So far, that has not been the case. Retail sales in April were flat and excluding gasoline, they were up just 0.1 percent from March. People are not spending, because they are not buying that the economic recovery is for real. The University of Michigan’s consumer sentiment index dropped sharply, with respondents’ saying that they are still concerned about losing their jobs. In fact, they reported the highest probability of losing their jobs since 2009. The sour mood coincides with data showing that new jobless claims remain at 15-year lows.

And it’s not just in the U.S., says Capital Economics “consumers in advanced economies [US, euro zone, UK and Japan] have so far opted to save, rather than spend, their oil windfall.” All is not lost, because there is hope that as labor markets strengthen, confidence and spending should follow. Additionally Joel Naroff of Naroff Economic Advisors reminds us that the retail sales report does “not include services, which is two-thirds of spending, so we really cannot count the consumer out just yet.”

In addition to consumer spending, which is expected to spring back in the coming months, hopes are high for continued housing market gains. For much of the recovery, potential first time homebuyers were opting for rentals due to a combination of outstanding student loan debt, difficulty in obtaining mortgages and a generalized fear of owning a home. The later two issues appear to be dissipating (home purchase mortgage applications increased to a two-year high in April), especially as rents rise in many of the cities where young, first time buyers live.

Unfortunately, outstanding student loans could continue to partially impede progress in the housing market. Just in time for college graduation season, the New York Federal Reserve reported that total outstanding student loan debt increased to 1.2 trillion in the first quarter, up $78 billion from a year ago. Additionally, the college class of 2015 holds a dubious distinction: its graduates are the most indebted ever. The average graduate, with a student-loan, owes just over $35,000, according to Edvisors. Adjusted for inflation, that’s more than double the amount borrowers had two decades ago.

MARKETS: Consumer confidence may be down, but that hasn't stopped investors from pushing up stocks at or near record levels.

• DJIA: 18,272, up 0.5% on week, up 2.5% YTD (16 points from all-time high)
• S&P 500: 2122, up 0.3% on week, up 3.1% YTD (8th record close of the year)
• NASDAQ: 5,048 down 0.9% on week, up 6.6% YTD
• Russell 2000: 1244, up 0.7% on week, up 3.3% YTD
• 10-Year Treasury yield: 2.14% (from 2.15% a week ago)
• June Crude: $59.96, up 0.5% on week
• June Gold: $1225.30, up 3.1% on week
• AAA Nat'l avg. for gallon of reg. gas: $2.70 (from $2.66 wk ago, $3.65 a year ago)

THE WEEK AHEAD: Traders are eagerly awaiting a long weekend-most will focus on minutes from the last Fed policy meeting and earnings reports from some of the nation’s largest retailers.

Mon 5/18:

Urban Outfitters

10:00 Housing Market Index

Tues 5/19:

Home Depot, TJX, Wal-Mart

8:30 Housing Starts

Weds 5/20:

Lowes, Sears, Staples, Target

2:00 FOMC Minutes

Thurs 5/21:

Aeropostale, Best Buy, Dollar Tree, Gap

10:00 Philly Fed

10:00 Existing Home Sales

Fri 5/22:

Ann Taylor, Foot Locker

8:30 Consumer Price Index