● US consumer spending flat in April, higher incomes boost savings | USN&WR
● US ISM mfg. index edges up to 52.8%, beats expectations | MarketWatch
● Global manufacturing growth ticks higher in May: PMI | Markit
● Slowest increase in US mfg. new orders for almost 18 mos. | Markit
● Eurozone y-o-y consumer prices in May rose for the first time in 6 months | WSJ
● German Unemployment Falls In May | RTT
● Greece debt crisis talks held as deadline nears | BBC

Consumer spending was unchanged in April, the US Bureau of Economic Analysis reports, but income delivered a better-than-expected rise. There’s also upbeat news for private-sector wages for April, which posted moderately stronger growth–growth that translates into a faster year-over-year gain. The firmer numbers on wages, the primary source of personal income, implies that the recent softness in consumption is self-imposed rather than the blowback from a slump in household earnings. The upward trend in the income ledger is still modest, but it provides another clue for arguing that the US economy isn’t in danger of sliding into a new recession.
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Gross domestic product (GDP) is down, but gross domestic income (GDI) is up. One hints at the possibility of a recession for the US while the other still points to growth, albeit at a lesser pace than we’ve seen recently. GDP retreated by 0.7% in the first quarter, but GDI—considered an alternate and arguably superior measure of economic activity—increased 1.4% (real seasonally adjusted annual rates).
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Positive performance was a rare commodity in May for the major asset classes. With the exception of US stocks and a fractional gain for US high-yield bonds, red ink dominated last month’s return ledger. The big loser: emerging market stocks in US dollar terms. After surging in April, posting the biggest monthly advance in more than three years, the MSCI Emerging Markets Index gave up a more than half of that gain and stumbled 4.0% last month.
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● US Economy Contracted 0.7% in First Quarter | NY Times
● Forget GDP: Here’s the new way Wall Street is measuring the US economy | BI
● Consumer Sentiment in U.S. Decreased in May to Six-Month Low | Bloomberg
● Eurozone Manufacturing Recovery Continues In May | RTT
● Germany May Manufacturing PMI 51.1 vs Flash Reading 51.4 | Bloomberg
● UK CIPS May Manufacturing PMI Lower Than Forecasts | MNI
● Greece faces crucial week of IMF repayments | BBC

● Hubris: Why Economists Failed to Predict the Crisis
and How to Avoid the Next One
By Meghnad Desai
Review via Times Higher Education
Far from being finally tamed, as much of the economics profession liked to boast, boom and bust was just on hold for a while. As Desai argues, the idea of automatic equilibrium is a dangerous delusion. Disequilibrium, not equilibrium, is the natural order. “Capitalism is a dynamic system but it works through creating cycles and crises. It is a disequilibrium system.” In seeking an explanation for the post-2008 crisis, Desai turns to “long wave” theories, such as the one developed in the 1920s by the Russian economist Nikolai Kondratieff, that predict periodic turbulence rather than equilibrium. He suggests that 2008 was at the tail end of the upswing phase of a 40-year-long Kondratieff cycle that began with a downswing lasting from the early 1970s to the early 1990s.
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As expected, US GDP for the first quarter was revised down to a modest decrease in today’s update from the Bureau of Economic Analysis. Economic activity slumped 0.7% in the first three months of the year in seasonally adjusted annualized terms, below the mild 0.2% rise previously reported. The negative revision certainly adds a bit more gloom to the macro outlook. But for the moment it’s still reasonable to reserve judgment. The headline data for the quarterly comparison looks troubling, but it’s not yet a definitive signal that the economic recovery is dead.
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The recent stumble in US economic data raises new questions about the timing of the Fed’s plans for raising interest rates. The earliest forecast for the first round of tightening monetary policy has been pushed up to September, although some analysts say that the turning point for rates will come later, perhaps early next year. Much depends on the incoming data, of course. Meantime, what is the Treasury market telling us? One way to cut through the noise in search of signals is to calculate a series of moving averages on Treasury yields. By that standard, the market’s sending mixed messages these days. The 2-year yield—considered to be the most sensitive spot on the yield curve for rate expectations—is trending up. The 5- and 10-year yields, by contrast, continue to trend lower, although there are some clues that suggest that the slide has run its course in longer-term maturities.
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● US Jobless Claims Rise, But Job Growth Still Seen Strong | WSJ
● US pending home sales race to nine-year high in April | Reuters
● Consumer Comfort in US Slumps on Views of Buying Climate | Bloomberg
● Eurocoin Business Cycle Indicator Rises Further In May | RTT
● German retail sales rebound in April | Reuters
● French Consumer Spending Rebounds Less Than Expected In April | RTT
● Weak Household Spending, Inflation Dampen Japan Economic Outlook | RTT
● Is China easing losing its mojo? | CNBC

New claims for unemployment benefits in the US increased last week, but the trend remains encouraging. The consensus forecast told us that claims would post a modest dip to a seasonally adjusted 270,000 in today’s release for the week through May 23; instead, filings jumped to 282,000, the US Labor Department reports. But the four-week average, which is close to a 15-year low, barely budged and the year-over-year change continues to fall at a healthy rate. In short, there’s not much news in today’s update, which means that this leading indicator continues to point to ongoing growth for the labor market.
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