What to Watch for This Week

The Conference Board releases its Consumer Confidence Index for June on Tuesday. Gallup's Economic Confidence Index suggests consumers are less optimistic in June while last week's increase in the Reuters/University of Michigan Consumer Sentiment Index implies just the opposite. Of course, the Conference Board use of a mail survey makes its results hard to predict.

Regardless, the big story this week involves jobs -- and that picture may also be somewhat confusing. Gallup's Job Creation Index and Underemployment measures suggest job conditions have been improving on a not-seasonally-adjusted basis when temporary census workers are included. In turn, this implies that the BLS is likely to report on Friday that the U.S. unemployment rate remained the same or improved slightly in June. Suggestions that census taker layoffs may increase the June unemployment rate seem premature.

Of course, the real question is what happens as the temporary census workers lose their jobs later this summer. At this point, any new jobs are a good thing -- but the reverse is also true.

Gallup's consumer spending data has fallen back to last year's "new normal" during June. An increase in the unemployment rate as census jobs disappear seems unlikely to help the situation -- not good news for retailers or the economy this summer.

Consumer Sentiment Report Lacks Face-Validity

On Thursday, Gallup reported that Economic Confidence deteriorated in June compared to May. On Friday, Reuters/University of Michigan reported that their final Consumer Sentiment Index for June not only increased in June -- but actually hit its highest point since January 2008.

Scientifically, Gallup's Economic Confidence measure is based on much better data than that used for the Consumer Sentiment Index. Gallup collects approximately 500 interviews nightly to measure consumer optimism -- about the same sized nightly poll as the total sample used as the basis for the Consumer Sentiment Index.

Further, this new report showing consumer sentiment at its highest since January 2008 -- just when the recession was getting underway -- seems to lack simple face-validity. The poor jobs report, the turmoil in the stock market, the financial crisis in Europe, and the continuing oil spill in the Gulf of Mexico would tend to corroborate, or least be consistent with, Gallup's finding that consumers are less optimistic in June than they were in May. It is hard to fathom or explain the Reuters/University of Michigan's finding.

What to Watch for This Week

The week started with some excitement about China's supposed new "flexibility" on the Yuan sending equity markets up around the world. While this announcement may have a political benefit at the approaching G20 meeting, it is a lot less clear that this added flexibility is really new or significant for U.S. consumers.

Similarly, the FOMC (Federal Open Market Committee) begins two days of meetings on Tuesday. While a minor change in the language of the FOMC statement on Wednesday could impact interest rates and the markets briefly, it is unlikely that the Fed is going to change course to any significant degree, particularly given the recent signs of a potentially slowing U.S. economy.

On the other hand, Thursday's jobless claims report will provide another potential insight into today's struggling job market. Gallup's weekly Job Creation Index (JCI) surged to its highest level of the year (+11) last week suggesting that the the government will report jobless claims declined for that period -- claims tend to be inversely related to the JCI.

Friday's Reuter's/University of Michigan's consumer sentiment index might also move the markets. Although Gallup's Economic Confidence Index improved slightly last week, June's Index results are running a little worse than those of May. Whether the consumer sentiment index will accurately reflect that decline is uncertain -- given its relatively small sample size.

Most importantly, it seems as though the Gulf Coast oil spill will continue unabated for another week. Americans seem to know instinctively that this is not only horrible to watch, but also will have a significantly negative economic impact -- not only on those directly affected -- but also on all Americans.

Euro Crisis Good for U.S. Consumers, Not Jobs

In a lot of ways, it may be hard for U.S. consumers not to cheer the plunging euro. Oil prices plummeted as the European financial crisis unfolded and remain much lower than they might be otherwise. This means lower gas prices for American consumers this summer than might otherwise be the case given the Gulf of Mexico oil spill.

American consumers may also benefit as European exports become more affordable. A less robust consumer market in Europe is not only likely to place a premium on U.S. sales for foreign exporters, but may also slow exports from China reducing the pressure on commodity prices. Further, U.S. consumers are likely to benefit from today's lower long-term interest rates for much longer than previously expected.

All of these benefits should help U.S. consumers rebuild their personal balance sheets. In turn, this consumer recovery suggests the U.S. could achieve a moderate, but more sustainable, economic expansion over time.

Ironically, what may be good for U.S. consumers as individuals could be bad news for the U.S. economy and jobs. Already, Gallup's economic confidence data for May have taken a tumble.

However, the most significant potential affect of the euro crisis may be its impact on upper-income spending. Gallup's May spending data suggest some upper-income consumers may be experiencing what an analyst on CNBC referred to as "frugality fatigue." The question is whether the financial crisis in Europe and equity market response will reinvigorate the "frugality" trend that has dominated for nearly two years.

Given this context, May's most important jobs numbers could be those involving underemployment -- not unemployment. Gallup's underemployment rate appeared to stall in May. It could be that the euro crisis and the potential for "extended frugality" already has some employers hesitating to hire full-time workers and instead adding part-timers -- not good news for those looking for full-time jobs nor the U.S. economy.