Today's Coffee - Market Moving News Abounds

First Quarter GDP Revision:

First quarter GDP growth was revised to 0.6% from 1.3%, initially estimated. The growth rate fell short of economists' consensus expectation for 0.8% growth. This is not good news folks, but most economists forecast a pickup in growth in the second quarter. Also, talking heads are noting revised higher consumer spending for Q1. Surely, Q2 GDP should benefit from the rising equity markets, but we believe a pickup in GDP will be followed by future quarter declines and recession.

A couple things that we found noteworthy in recent data were that expectations are that future consumer spending will soften. Today's gasoline storage build points towards the possibility that expensive gasoline prices are indeed eating into the consumer's pocket, possibly limiting his travel and accompanying expenditures to restaurants, retail and other establishments. Next week's gasoline inventory data should be rather telling, considering the Memorial Day holiday. If people didn't travel during Memorial Day weekend, we should be able to build conviction in the theory that rising prices, tighter credit and home equity losses are playing a role. Then we can look forward to retail surprises, margin pressures and increasing unemployment. Layoff reports from Motorola (MOT) and Pulte Homes (PHM) also portend further strain on consumers to come.

Employment:

The Monster Employment Index rose to 189 in May from 186 in March. Clearly, online employment search continues to benefit from a secular trend, as job seekers increasingly migrate from help-wanted type searches to online effort. Still, this figure shows the job market continues strong.

Weekly initial jobless claims fell 4,000 to 310,0000, but were in line with expectations. The ADP report earlier this week revealed the private sector added about 97,000 jobs last month, and looks to be supporting Wall Street Greek's thesis that new hiring will first tail off before unemployment rises. Tomorrow's Employment Status Report from the Labor Department is likely to reveal similar results to the ADP figure. ADP has proven a better predictor of the Labor Department figure since changes to its generation earlier this year.

NAPM - Chicago

The National Association of Purchasing Managers - Chicago reported manufacturing health for May. The reading of 61.7 compared with April's 52.9. Please recall that I theorize manufacturing will lag service sector weakness. Manufacturing continues to benefit from global demand for American product in a depreciating dollar environment. Eventually, we believe weak domestic demand weakness will impact manufacturing.

Construction:

U.S. construction spending rose 0.1%, exceeding expectations for no change. Commercial and municipal activity continued to offset residential weakness. However, we anticipate that retail weakness could expose a saturated retail environment leading to consolidation and a decrease in commercial activity.

Yesterday's FOMC Meeting Minutes:

We reviewed the minutes and they seem to support our thesis. The committee expressed some of the same concerns we do, but did not foresee retail spending dropping off as much as we do. We believe the Board of Governors has been lulled to sleep by consistent consumer strength in times past, and may be missing the degree of impact the many factors working together against the consumer could hold.

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