Consumers, builders are spending more. So why so serious?

Consumer spending, a critical economic driver, is on the up. So is construction spending, lending credence to the idea that the housing market is stabilizing and headed for recovery. Still, Wall Street is wringing its hands.

Even without the dismal jobs report, which saw the unemployment rate rise to 8.2% and job growth slow, a mixed bag of economic data released Friday was enough to leave investors feeling unbalanced.

Construction spending for April reached an annual rate of $820.7 billion – 0.3% above March’s revised increase and 6.8% more than in April 2011. Spending on private construction increased 1.2% from March to $549.7 billion, according to the Commerce Department.

Recent news out of the housing industry shows a market seemingly poised to regain its footing. Short sales are at a three-year high, which some experts believe is a necessary precursor to healing.

Home sales are rising along with housing starts, permits and builder confidence. Mortgage rates are at record lows and vacancy and foreclosure rates are moderating.


The fact that consumers also spent $31.8 billion in April on goods and services -- a 0.3% increase from March -- should be a good sign. Right?

But the same Commerce Department report found that personal income grew just 0.2% to $31.7 billion -- the smallest advance since November. Economists fear that Americans aren’t earning enough to support a spending spike and are instead cutting back on saving.

Add to that the new Institute for Supply Management report on manufacturing, which found that growth in the factory sector is slowing. The group’s index slipped to 53.5 in May from 54.8 in April. Any reading above 50 represents growth.

Employment in production facilities fell to 56.9 from 57.3. New orders, however, improved significantly to 60.1 from 58.2 -- a 13-month high.

But other components of the report, such as its production index and gauge of order backlog, slid. The drops “suggest that global troubles are starting to have some impact on U.S. manufacturing,” said Cliff Waldman, senior economist for the Manufacturers Alliance for Productivity, in a statement.

“The jobs report for May is strong evidence that the U.S. economy can’t entirely remain an island in a sea of troubles,” he said.


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