Your Weekly Update

Last week saw the U.S. stock market spring higher at the start, through Wednesday, with the Dow finding a perch 100 points above 18,000. Only to see it descend a couple-hundred points by Friday's close---leaving it with a paltry plus for the week. The S&P 500 chart looks virtually identical, while the Nasdaq Comp finished the week slightly in the red.

The Monday-Wednesday price action either completely discredits my position that, these days, good economic news is, in the short-run, bad stock market news, or there was something else afoot. I.e., the Monday-Wednesday U.S. economic news (particularly employment-related) came in pretty darn good, which---if traders see a 2015 Fed rate hike as bad for equity prices---should've been greeted like an emergency visit to the dentist. But, as I mentioned, the market rallied hard through Wednesday.

I might say that the Thursday/Friday sell-off validated my case---in that the U.S. economic news only got better---but I won't. Because there was indeed something else afoot. Europe! Yes, Greece is a big deal, at least in the near-term, for global markets. So big that, in a week with little Fed-speak, it trumps even the fear over higher interest rates.

The Dow rallied 200+ points on Wednesday following the release of this blurb:

Chancellor Angela Merkel’s government may be satisfied with Greece committing to at least one economic reform sought by creditors to open the door to bailout funds, according to two people familiar with Germany’s position.

The Dow tanked nearly 200 pts (closing down 140) on Friday following this release:

The back and forth between Greece and its lenders remains unresolved after the IMF announced that its delegation had left negotiations in Brussels and flown home because of "major differences" with Athens over how to save the country from bankruptcy.

Next week, however, should be a different story. Short of Greece suddenly defaulting and leaving the Eurozone, traders won't be looking across the Atlantic for guidance on their moment-to-moment trading decisions (be thankful you're not a trader!). Nope, they'll be focused on Wedensday's announcement, and subsequent press conference, regarding the goings on at the corner of 20th Street and Constitution Avenue in Washington D.C. That would be the address of the Marriner S. Eccles Federal Reserve Board Building (the "Eccles Building" for short)---which is the meeting place of the Federal Open Market Committee (the arbiter of U.S. interest rate policy), chaired by Janet Yellen.

Early in the year, June was on the radar as a possible date for a Fed rate hike. That, I'd bet big money (if I were a better with big money), has virtually zero chance of happening. The financial market shock---something, I assure you, the Fed is deathly afraid of---that would result from what would now be a surprise June rate-hike makes one virtually impossible. Ah, but I do think next week's Fed commentary could move markets nonetheless (not everyone agrees).

As I've been reporting, the economy is moving along in firmly positive fashion. Which---despite relatively tame inflation readings---gives the Fed the green light to move its benchmark rate off of the zero lower bound as early as this September. And, again, wanting that first rate-hike to exact as little pain as possible, the Fed has to prepare the markets. Kinda like scheduling a root canal and getting emotionally-prepared, as opposed to cancelling your picnic plans and rushing to the dentist because out of the blue your tooth is killing you.

The question is, how's the market going to initially feel as its would-be dentist bends her brow and says, "you know, it looks like we're probably going to have to do a little work come later this year. But, I promise, it won't hurt too bad"? Will it (traders) believe the "won't hurt too bad part"? We'll see...

Last week I promised I'd touch on the prospects for the non-U.S. portion of your portfolio, so here goes:

Can you imagine limiting your investment options to an economy that houses merely 4% of the world's human capital? Or one that encompasses only 36% of the world's market capitalization? Let's hope not, for that would be a most restrictive way of viewing the business of growing your personal wealth. Well, that's the bottom line for those who stick all of their portfolios in, say, an S&P 500 index fund. Other than investing in U.S. companies that do business in other economies (which is no small deal, btw), they miss out on the growth potential of economies with favorable demographics and the need (and desire!) for modern infrastructure---and they forego the ownership of companies that will without question shape the future landscape of this interdependent world we live in.

Thus, the long-term odds are very much in favor of those willing to brave the inherent ups and downs of international financial markets.

As for the near-term, well, that's anybody's guess. But I will say that if a given country's central bank policy eases and tightens based on where its economy rests on the business cycle, many (if not most) other markets look to presently sport greater growth potential than does the U.S.'s. I.e., much of the rest of the world has some economic catching up to do, and as much as over-intervention concerns me (wrote a book on it even), their policymakers are hell-bent on goosing their respective financial markets to help their economies along.

From the beginning of March to current, the world saw 25 interest rate cuts (from [among others] the likes of China, India, South Korea, Australia, New Zealand and Sweden) and only 11 hikes (Brazil three times, Trinidad twice, and Ukraine, Angola, Georgia, Moldova, Kenya and Iceland once each). The European Central Bank, like the U.S., is already as low as it can go, but, unlike the U.S., it is in the early stages of a massive quantitative easing (printing Euros and buying assets) program that's scheduled to run through September 2016.

As for valuations, I update the P/Es and PEG ratios (factors in 5-year earnings growth estimates) for 22 countries/regions on a weekly basis. And as of last Wednesday---based on this year's earnings---I count 19 with lower P/Es and 18 with lower PEGs than the S&P 500. Based on 2016 estimated earnings, all but 2 sport lower P/Es than the S&P.

All that optimism aside, in the near-term, non-U.S. markets---particularly the emerging markets---will have to contend with a soon-to-be-higher U.S. Fed funds rate. Clearly, the recent pullback in emerging markets tells us that traders are nervous about a repeat of the fallout that occurred back in early 2013---when Ben Bernanke merely mentioned that the U.S.'s quantitative easing program would have to be "tapered" at some point in the then foreseeable future. That utterance sent emerging market equities (and currencies) reeling as arbitragers exited their higher-yielding, stronger-currency foreign positions and rushed back to a U.S. dollar that they figured would have to rally, amid higher interest rates, going forward. And while I can see some pain a coming (if emerging market equity prices haven't already priced in a Fed hike), the dynamics are vastly different this go round.

You see, the dollar has already rallied big time, so I'm not so sure that the Fed's normalizing of interest rates will send it further toward the moon. In fact, I could argue that while the interest rate differential (the U.S.'s higher than others') does make the stronger-dollar case, if a Fed hike is viewed as an economic cooler we could see a flight out of the dollar and into the currencies of countries with greater growth potential.

The consensus is clearly in the stronger dollar camp for now. Which, again, from a short-term trading perspective, poses a headwind for emerging market equities. Time will tell...

The Stock Market:

Non-US markets have measurably outperformed the U.S. major averages (save for the NASDAQ Composite  Index) year-to-date. Don’t, as I suggest above, be surprised if that remains the story throughout most of the year---given many foreign markets' cheaper valuations, early-stage recoveries and, yes, accommodative central banks. That said, there are a number of potential international hot buttons that could easily delay the narrowing of the gap between the valuations of U.S. and non-U.S. securities. That’s why we think long-term and stay diversified!

Here’s a look at the year-to-date results (according to Morningstar) for the major U.S. indices. And (according to ETFdb.com) the results for non-U.S. indices and U.S. sectors---using index ETFs as our non-U.S. and sector proxies:

Dow Jones Industrials:  +1.60%

S&P 500:  +2.68%

NASDAQ Comp:  +7.23%

EFA (Europe, Australia and Far East):  +8.81%

FEZ (Eurozone):  +6.55%

VWO (Emerging Markets):  +4.00%

Sector ETFs:

Here’s a look at the year-to-date results for a number of U.S. sector ETFs:

IYH (HEATHCARE):  +9.92%

XHB (HOMEBUILDERS):  +7.03%

XLY (DISCRETIONARY):  +6.51%

XLB (MATERIALS):  +3.72%

XLK (TECH):  +3.61%

XLF (FINANCIALS):  +1.62%

XLE (ENERGY):  -2.13%

XLI (INDUSTRIALS):  -0.61%

XLP (CONS STAPLES):  -0.28%

IYT (TRANSP):  -7.53%

XLU (UTILITIES):  -9.21%

The Bond Market:

As I type, the yield on the 10-year treasury bond sits at 2.39%. Which is 2 basis points lower than where it was when I penned last week's update.  

TLT, an ETF that tracks an index of long-dated U.S. treasury bonds, saw its share price rise 0.30%  last week (down 6.33% year-to-date).  As I keep repeating, I see bonds in general sporting a risk/return trade-off that makes going out on the yield curve not worth the risk.

Once again, here's the reminder on volatility I posted earlier in the year:

In last weekend’s commentary I attempted to put a rough January into proper perspective by urging you to view the stock market as an “antifragile” (benefits from stress) entity. Again, periodic market downturns are an essential aspect of the long-term investing process. As I stated in our year-end letter, and several commentaries since, I expect financial markets in 2015 to exhibit the kind of volatility that will challenge the resolve of many a short-term investor. Good thing you and I think long-term!

One additional note on volatility: The past couple of weeks I’ve shared with you the very short-term results for markets and sectors. I do this with a bit of hesitation, as I in no way want to give the impression that you, nor I for that matter, should base our long-term investment decisions on short-term movements in markets or their sectors. It can, however, serve as a reference point for how the markets are, or are not, responding to the data (which is why I, as a professional, track the short-term). As you may have noticed, my beginning of the year optimism over non-US and the housing sector (to name two), and pessimism over utilities, appears to be justified by recent results. I need to strongly (very strongly!) emphasize that I was not predicting what we’ve experienced these few short weeks into 2015. My optimism or concerns are based on factors such as valuations, trends, monetary policy and cyclicality—and my comfort in making allocation recommendations rests on the view that our clients are not short-minded investors (it can take awhile, if at all, for the market to reward what I believe to be good fundamental logic) who mistakenly believe that any human being possesses a capacity for market timing. Some people get lucky from time to time, but without exception, market timers are wrong far more often than they are right. The path to long-term investment success is fraught with bumps and potholes. The ones who successfully make the journey take it slow and never over-compensate when steering through and around the inevitable obstacles along  the way.

Here are last week’s U.S. economic highlights:

JUNE 8, 2015

THE CHICAGO BOARD'S EMPLOYMENT TREND INDEX ticked up in May. Here's from the release:

The Conference Board Employment Trends Index™ (ETI) increased in May. The index now stands at 128.60, up from 128.10 (a downward revision) in April. The change represents a 5.1 percent gain in the ETI compared to a year ago.

“In the past six months, the Employment Trends Index has been growing at a 3.5 percent annual rate, which is solid, but slower than the rates of the past two years. We therefore expect employment to grow by about 200,000 new jobs per month, rather than the spectacular 250,000-300,000 we experienced in 2014,” said Gad Levanon, Managing Director of Macroeconomic and Labor Market Research at The Conference Board. “Given that the labor force is barely expanding, job growth of about 200,000 per month will be sufficient to continue rapidly lowering the unemployment rate.”

May’s increase in the ETI was driven by positive contributions from six of the eight components. In order from the largest positive contributor to the smallest, these were: Percentage of Firms with Positions Not Able to Fill Right Now, Industrial Production, Real Manufacturing and Trade Sales, Number of Employees Hired by the Temporary-Help Industry, Initial Claims for Unemployment Insurance, and Job Openings.

THE FED'S LABOR MARKET CONDITIONS INDEX rose 1.3 points in May, after declining the two previous months. Although those previous declines were revised upward, to -1 from -1.8 and from to -0.5 from -1.9 respectively. This speaks volumes about the improving labor market and will put added pressure on the Fed to raise rates sooner than later.

JUNE 9, 2015

THE JOHNSON REDBOOK RETAIL REPORT continues to surprise me to the downside. Coming in at 1.2% year-over-year vs 1.7% last week. The calendar shift for Father's Day from the 3rd week of the month to the 4th week may have an effect, but, nonetheless, this index doesn't jibe with other indicators. Forecasters will be more focused on this Thursday's retail sales report for May, which is expected to come in strong...

THE NFIB SMALL BUSINESS OPTIMISM INDEX shows small business owners feeling a bit better about their prospects. Registering its best reading of the year, 98.3. Here are the highlights of key areas in the report:

LABOR MARKETS

Small businesses posted another decent month of job creation in May, a string of 5 solid months of job creation. On balance, owners added a net 0.13 workers per firm over the past few months. Fourteen percent reported raising employment an average of 2.7 workers per firm while 12 percent reported reducing employment an average of 3 workers per firm. Fifty-five percent reported hiring or trying to hire (up 2 points), but 47 percent, reported few or no qualified applicants for the positions they were trying to fill. Thirteen percent reported using temporary workers. Twenty-nine percent of all owners reported job openings they could not fill in the current period, up 2 points, revisiting the February reading, and the highest reading since April 2006.

INVENTORIES AND SALES

The seasonally adjusted net percent of all owners reporting higher nominal sales in the past 3 months compared to the prior 3 months rose a stunning 11 points to a net 7 percent. Eleven percent cited weak sales as their top business problem (unchanged). Expected real sales volumes posted a 3 point decline, falling to a net 7 percent of owners expecting gains, after a 5 point decline in January and February, a 2 point decline in March and a 3 point decline in April. Overall, expectations are not showing a lot of strength.

The net percent of owners reporting inventory increases fell 4 points to a net negative 5 percent (seasonally adjusted). The net percent of owners viewing current inventory stocks as “too low” improved 1 point to a net 0 percent. The reductions were apparently a result of unexpectedly strong improvement in sales trends, and left balance in the assessment of current stocks. The net percent of owners planning to add to inventory was unchanged at a net 4 percent, in sympathy with the more widespread reduction in stocks. Inventory investment might have been even stronger in light of the liquidation had expectations for real sales gains improved rather than softened.

CAPITAL SPENDING

Fifty-four percent reported outlays, down a surprising 6 points. Of those making expenditures, 39 percent reported spending on new equipment (up 4 points), 21 percent acquired vehicles (down 4 points), and 13 percent improved or expanded facilities (unchanged). Six percent acquired new buildings or land for expansion and 12 percent spent money for new fixtures and furniture, both figures up 1 point. These numbers suggest, overall, a back-tracking of investment spending. The percent of owners planning capital outlays in the next 3 to 6 months fell 1 point to 25 percent, not a strong reading historically but among the best in expansion.

EARNINGS AND WAGES

Earnings trends posted an unexpected 9 point gain, posting a reading of a net negative 7 percent reporting higher earnings, on top of a 6 point improvement in April. is the best reading since October 2005. The main factor improving the earnings trend was the decline in the percent reporting lower earnings quarter on quarter.

Reports of increased labor compensation rose a point to a net 25 percent of all owners. Reports of gains frequent occurred in December 2014 and January of year, but those are the highest readings since January 2008 when employment last peaked before the recession. Labor costs continue to put pressure on the bottom line, but fuel prices are down a lot and sales trends much stronger. should begin to show up in wage growth, although rising benefits offset potential increases in take-home pay. A seasonally adjusted net 14 percent plan to raise compensation in the coming months (unchanged). The reported gains in compensation are still in the range typical of an economy with reasonable growth.

THE JOB OPENING AND LABOR TURNOVER (JOLTS) REPORT shows job openings surging to 5.376 million. That's the best reading in the history of this report, which dates back to 2000. Openings, year-over-year, exploded by 22%. More evidence that the jobs market and, therefore, the economy is clearly picking up: Here's Econoday:

The hawks have something to talk about with the April JOLTS report where job openings surged to 5.376 million, far above the Econoday consensus for 5.038 million and the high estimate at 5.050 million. This is the highest reading in the history of the series going back to 2000. Year-on-year, openings are up an eye-popping 22 percent! And the report includes a big upward revision for March, to 5.019 million vs an initial 4.994 million. April's job openings rate rose to 3.7 percent from 3.5 percent. This report will boost talk among the hawks that slack in the labor market is evaporating and that employers will have to raise wages to fill positions. Other readings include a tick lower for the quits rate, to 1.9 percent, and a tick lower for the separations rate, to 3.5 percent from 3.6 percent.

Recent History Of This Indicator JOLTS data had been very strong until the March report which was very weak. But a big gain is expected for April, one that would underscore last week's very strong employment report for May. Job openings are seen at 5.038 million vs March's 4.994 million.

 WHOLESALE INVENTORIES rose .4% in April, while sales surged 1.6%. This brings the inventory to sales ratio down to 1.29 from 1.30. This is good news in terms of production going forward.

JUNE 10, 2015

MORTGAGE PURCHASE APPLICATIONS surged 10% last week. Factors tied to the Memorial Day weekend get the credit. Refinancings were up 7%. The average thirty-year rate is up to 4.17%. The rise in rates will surely hit refinances going forward. It'll be interesting to see how purchase apps do going forward---as the housing market is clearly looking good.

CRUDE OIL INVENTORIES declined by 6.8 million barrels last week as refineries are very actively operating, at 94.6% of capacity. GASOLINE inventories dropped 2.9 million barrels and DISTILLATES declined by .9 million barrels.

JUNE 11, 2015

WEEKLY JOBLESS CLAIMS have been consistently signaling strength in the labor market. Under 300,000 is considered a robust read, and we've been therefore weeks. Last week 279k, the 4-week average came in at 278.75k. Continuing claims were at 2.265 with the 4-week average at 2.23 million---these are low numbers! The unemployment rate for insured workers ticked up a tenth to a still very low 1.7%.

THE BUREAU OF CENSUS RETAIL SALES REPORT showed consumers in a buying mood in May, up 1.2%. With gains posted in "nearly all components". Here's Econoday (note the strength in building materials and garden equipment [per my optimism over housing]):

The consumer showed a lot of life in May, driving up retail sales 1.2 percent with gains sweeping nearly all components. A leading component in the month was motor vehicle sales which jumped 2.0 percent, excluding which retail sales still rose a very strong 1.0 percent. Another component showing special strength was gasoline sales which got a boost from higher prices. Still, excluding both of these components, retail sales ex-auto ex-gas gained a very solid 0.7 percent. These results offset weakness in April, when total sales rose only 0.2 percent (upward revised from no change). 

In contrast to weakness through most of the April report, there's only one component showing contraction in May and that's the usually solid health & personal care stores at minus 0.3 percent. Standouts on the plus side, apart from vehicles and gasoline, are building materials & garden equipment stores, up 2.1 percent, clothing & accessories stores, up 1.5 percent, and nonstore retailers, up 1.4 percent. Department stores, which sank a steep 2.9 percent in April, rebounded with a 0.8 percent gain.

The long awaited rebound from the soft first quarter is finally here. Today's results will have forecasters upping their estimates for second-quarter GDP. These results will also be a key point of discussion, especially in arguments by the hawks, at next week's FOMC meeting.

IMPORT AND EXPORT PRICES both increased in May. Here's Econoday's summary:

May import prices advanced a monthly 1.3 percent in May, after slipping 0.2 percent in April. The May increase was the first monthly rise since the index advanced 0.3 percent in June 2014 and the largest one month increase since the index rose 1.4 percent in March 2012. However, on the year, import prices dropped 9.6 percent and have not recorded a 12-month rise since the index advanced 0.9 percent between July 2013 and July 2014. Excluding fuel, import prices were unchanged after declining 0.3 percent in April. 

Prices for import fuel jumped 11.8 percent in May following a 1.3 percent advance in April and the largest monthly advance since the index increased 16.0 percent in June 2009. A 12.7-percent jump in petroleum prices in May led the advance in overall fuel prices. 

May export prices were up 0.6 percent after declining 0.7 percent in April. The May advance was the largest rise for the index since a 0.9-percent increase in March 2014. In May, rising nonagricultural prices more than offset lower agricultural prices. On the year, export prices declined 5.9 percent. 

Agricultural export prices were down 1.0 percent, continuing the downward trend over the past 12 months. In May, falling wheat and corn prices more than offset higher prices for fruit and nuts. Excluding agriculture, export prices were up 0.7 percent, led by higher prices for nonagricultural industrial supplies and materials and automotive vehicles which more than offset lower prices for capital goods and consumer goods. Nonagricultural export prices fell 4.6 percent for the year ended in May. 

THE BLOOMBERG CONSUMER COMFORT INDEX --- while better than last year's average --- does not jibe with what I'm seeing below the surface. I expect the attitudes among respondents will improve as the next few weeks/months unfold. Here's the release:

Consumer Comfort in U.S. Falls for a Record Ninth Straight Week

By Michelle Jamrisko

(Bloomberg) -- Consumer confidence dropped for a record ninth straight week as Americans’ views of the buying climate deteriorated to a seven-month low.

The Bloomberg Consumer Comfort Index decreased to 40.1 in the period ended June 7, the weakest since November, from 40.5 the prior week. The gauge has fallen about 8 points since reaching an almost eight-year high in mid-April.

Waning sentiment over the past two months coincides with a pickup in the price of a gallon of gasoline since the end of March. While attitudes about spending soured for the eighth week in nine, wage gains and higher stock prices helped households feel better about their finances, the report showed.

“This has been more like an unusually long, slow leak,” Gary Langer, president of Langer Research Associates LLC in New York, which produces the data for Bloomberg, said in a statement. “Sharply rising gas prices customarily correlate with declining consumer confidence.”

The average cost of a gallon of regular gasoline was $2.75 as of June 9, up about 35 cents since the end of March, according to auto group AAA.

The string of declines from April’s high marks the longest run since the survey began in 1985. Nonetheless, the measure is still higher than last year’s average of 36.7 that was the best since 2007.

Two of three components in the weekly index dropped in the latest report. The comfort index’s buying climate gauge, which measures whether now is a good time to purchase goods and services, fell to 33.5, also the lowest since November, from 34.2 in the prior period.

Economy Views

A measure of consumers’ views on the state of the national economy decreased to 32.1, the weakest since December, from 32.9. The gauge of personal finances rose to 54.7 from a three-month low of 54.4 in the prior period.

Sentiment among men declined for the first time in five weeks, while among women it fell for a fifth week.

Confidence among homeowners was particularly depressed, with that measure falling to a more than seven-month low of 41.6 from 41.8 in the previous period. That helped narrow the gap between owners and renters to 3.4 points, compared with a historical average of 10.3 points, Langer said.

Five of seven income groups showed a decrease in sentiment. Those making at least $25,000 but less than $40,000 a year were the least upbeat since October. While confidence climbed among those making more than $100,000, the index was the second-lowest since September.

By Region

Two of four U.S. regions showed a drop, with sentiment in the Northeast falling to its lowest since October. The Midwest region’s gauge also decreased, while confidence rose in the South and the West.

The data are the latest to indicate that a plunge in energy costs in the second half of last year produced a $150 billion windfall for U.S. consumers with little to show for it.

Persistent job gains might keep Americans’ confidence from an even bigger retreat. Employers added 280,000 jobs in May, the most in five months, after a 221,000 April advance.

Wage growth also has begun to show signs of life. Average pay for all civilian workers climbed 4.2 percent in the first quarter from the same period in 2014, Labor Department figures showed Wednesday. That compares with a 4 percent year-over-year gain in the fourth quarter and is the strongest since July-September 2006.

Average hourly earnings reported with the Labor Department’s monthly jobs figures accelerated in May to show a 2.3 percent year-over-year gain, the fastest since August 2013.

The potential for a Fed rate hike this year has businesses such as Mooresville, North Carolina-based Lowe’s Cos. on guard for the impact on sentiment and spending.

An increase in interest rates has the potential to hurt confidence and consumers’ willingness “to invest in a new home or spend on their existing home,” Chief Financial Officer Robert Hull said at a June 10 conference hosted by financial services firm Piper Jaffray Cos.

BUSINESS INVENTORIES for April show the inventory build during a weak Q1 reversing. While inventories rose .4% in April, sales came in at almost .6%, leaving the inventory to sales ratio at 1.36, which is slightly below a post-recession high. As sales increase going forward---assuming the economy continues to gain traction---we should see the ratio come down further, which is a good thing, as too-high inventories lead to less production going forward.

NATURAL GAS INVENTORIES rose once again last week, by 111 billion cubic feet.

THE FED BALANCE SHEET grew by $2.7 billion last week, to $4.468 trillion. RESERVE BANK CREDIT rose $1.7 billion.

M2 MONEY SUPPLY declined by $15.0 billion last week.

JUNE 12, 2015

THE UN IVERSITY OF MICHIGAN'S CONSUMER SENTIMENT INDEX's preliminary reading for June makes sense to me --- showing what we should expect given recent jobs and some recent spending data, and the generally positive sentiment coming from key producer surveys. Bloomberg's commentary gives the rundown:

American Consumers Getting Mojo Back as Wages Start Rising (1)

(Updates with closing stock  prices in fifth paragraph. To receive this economy column daily: SALT ECOCOL <GO>)

By Michelle Jamrisko

(Bloomberg) -- Bigger paychecks are giving American consumers reason to believe again.

The University of Michigan’s preliminary consumer sentiment index for June rose to 94.6, topping all estimates in a Bloomberg survey of economists, from a reading of 90.7 last month, figures showed Friday. Households were the most upbeat about their wage prospects in seven years.

As the ranks of the unemployed shrink, the competition for skilled workers is heating up and forcing employers to boost wages to attract and retain staff. Firming confidence makes it likely the recent pickup in consumer spending, which accounts for almost 70 percent of the economy, will be sustained.

“The labor market continues to improve, and that’s probably the biggest determinant of sentiment,” said Aneta Markowska, chief U.S. economist at Societe Generale in New York, whose forecast for a rise to 93.8 was among the closest in the Bloomberg survey. People “see their employers trying to fill positions and having a difficult time -- that probably gives them a sense of having a little more pricing power.”

Stocks fell, with equities almost erasing the week’s advance, amid growing concern Greece won’t reach a deal with its creditors in time to avoid default. The Standard & Poor’s 500 Index dropped 0.7 percent to 2,094.11 at the close in New York.

Survey Results

The median forecast in the Bloomberg survey of 68 economists projected the sentiment index would climb to 91.2. Estimates ranged from 87.7 to 94. The gauge averaged 84.1 last year.

The Michigan sentiment survey’s index of expectations six months from now increased to 86.8 from 84.2 last month. The gauge of current conditions, which measures Americans’ views of their personal finances, rose to 106.8 in June from 100.8 a month earlier.

“The June data are consistent with a 3 percent annual growth rate in real personal consumption expenditures during 2015,” Richard Curtin, director of the Michigan Survey of Consumers, said in a statement. “The majority of consumers anticipated good times in the economy as a whole during the year ahead.”

A 3 percent gain would make 2015 the strongest year for consumer spending since 2006. It grew 2.5 percent last year.

Payroll Gains

Sustained labor-market progress should help bolster expectations for a pickup in economic activity. Employers added 280,000 jobs in May, the most in five months, after a 221,000 April advance. An increase in the number of people entering the labor force caused the jobless rate to creep up to 5.5 percent from 5.4 percent, which was the lowest since May 2008.

The Michigan survey for June showed consumers projected wages would rise 2.2 percent a year, up from an estimated 1.3 percent last month and the highest since 2008. Households held the most favorable views about the outlook for their finances since 2007.

Average pay for all civilian workers climbed 4.2 percent in the first quarter from the same period in 2014 to $22.88 an hour, Labor Department figures showed this week. That compares with a 4 percent year-over-year gain in the fourth quarter and is the strongest since July-September 2006.

Average hourly earnings reported with the Labor Department’s monthly jobs figures accelerated in May to a 2.3 percent year-over-year pace, the fastest since August 2013.

Another report Friday showed wholesale prices rose in May as the biggest jump in fuel costs in at least five years swamped muted advances in other categories.

The 0.5 percent increase in the producer-price index followed a 0.4 percent decline the prior month, according to data from the Labor Department. Costs dropped 1.1 percent over the past 12 months.

Consumer sentiment measures have been mixed this month. The Bloomberg Consumer Comfort Index decreased to 40.1 in the period ended June 7, marking a record nine weeks of declines and the lowest since November, according to data issued Thursday. Fewer Americans said now was a good time to make purchases, even as views of their personal finances improved.

At the same time, consumer spending is showing signs of life. Retail sales increased 1.2 percent last month following a 0.2 percent advance in April, Commerce Department figures showed Thursday. The May gain was broad-based with 11 of 13 major categories increasing.

Federal Reserve policy makers are counting on a rebound in growth to justify an increase this year in the benchmark interest rate for the first time since 2006. The central bankers next meet June 16-17 in Washington and will release updated economic projections.

THE PRODUCER PRICE INDEX-FINAL DEMAND, on balance, came in benign for May. Here's Econoday:

There are signs of price pressure in the May producer price report where the headline came in on the high end of expectations, at plus 0.5 percent. The year-on-year reading, however, remains well in the negative column at minus 1.1 percent while the core rate looks benign, at only plus 0.1 percent on the month as expected for a year-on-year rate of only plus 0.6 percent.

Both food, up 0.8 percent, and energy, up 5.9 percent, did swing higher in the month following respective April declines of minus 0.9 percent and minus 2.9 percent. On food, fruits and vegetables both show mid-single digit gains on the month while gasoline and home heating oil both show big gains, at plus 17.0 percent and plus 11.5 percent on the month.

Elsewhere, however, inflation is mute with services unchanged on the month for a 0.6 percent year-on-year gain. Excluding food, energy and trade services, prices fell 0.1 percent for a year-on-year gain also at a very benign 0.6 percent.

Despite one-month spikes for food and energy, this report won't be sending any alarms off. Next report on inflation will be the consumer price index which, on Thursday next week, follows Wednesday's FOMC announcement.