Does the consumer smell economic napalm in the morning? Inflation expectations are rising. The preliminary Reuters/University of Michigan consumer sentiment index in May fell to 59.5 vs. 62.6 the previous month, the lowest levels since June ‘80. A decline to 62.0 was expected. The current condition component fell to 71.7 vs. 77.0, its lowest level since June ‘80. The expectation component fell to 51.7 vs. vs. 53.3, its lowest level since January '91. The one-year ahead inflation expectation rose to 5.2% vs. 4.8%.

More confusion for the consumer in the “far from normal” economy? No direction home? Consumer confidence/sentiment is in a free fall… what does it mean going forward? Steven Wood, Chief Economist at Insight Economics notes: "Over the past year, assessments of current conditions have declined by 31.8%, its largest year-on-year decline in the 30 year history of the data." Falling home prices, tighter lending standards, rising food and fuel prices and a loosening labor market are negatively impacting sentiment. Wood notes that the index is at recessionary levels.

Confusing data? Condo/apartment heaven but apocalypse for single-family starts? Single-family starts hit a 17 year low…keep in mind that condo/apartment starts are very volatile. Housing starts rose 8.2% to 1.032 million units annualized in April. Expectations were for a decline to 939,000 units. The previous month was revised fractionally higher to 954,000. Housing starts are down 30.6% year/year and are down 54.6% from the January '06 peak. The strength in the report was centered on the volatile multi-family sector which rose 36.0%. Multi-family starts are up 17.6% year/year. The important single-family starts fell 1.7% to 646,000 units, the lowest since January '91. Single-family starts are down 42.2% year/year and are down 62.0% from the peak in January '06.

Are home builders seeing Valkyries? CEO Robert Toll of Toll brothers, the largest luxury home builder in the US, said on May 13 as reported by Bloomberg News, the number of potential buyers at its sites was the ``worst we've ever seen.' The National Association of Home Builders (NAHB)/Wells Fargo reported yesterday its activity index fell to 19 in May vs. a reading of 20 the previous three months. Current sales fell 1 point to a record low, future sales fell 3 points and buyer traffic fell 2 points.

Bottom line…no direction home? Unsold inventories of homes remain high, lending standards have tightened, food and fuel prices have surged, the labor market is loosening, consumer confidence/sentiment is falling off the cliff, all pointing to continued softness in the housing sector/and a consumer that will be hiding in their foxholes. This implies that housing/consumer will be seeing more Valkyries…not singing fat ladies.

Is more bad news on jobs coming? Ride of the revisions. The Labor Department issued a report this morning showing non-farm payrolls in April as compiled from state reports fell 151,000 as compared to the nation report (released May 2) which showed a decline of 20,000. All things being equal (which they are not) implies substantial revisions to the non-farm payroll report.

Is this like throwing a pin into a haystack? Fannie Mae, the largest mortgage lender in the US, said effective June 1 they will stop requiring a larger down payment for home in areas where prices have been falling.

Play that Ride of the Valkyries AGAIN? Are we in the eye of the storm in the credit crisis? After comments from many, including Treasury Secretary Paulson that the worst of the credit crisis has passed, Nobel Prize winner in economics ('97) Myron Scholes said the worst of the credit crisis may not be over saying we may only be in the "eye of the storm" and it is hard to say if "there are other shoes to drop and new events of new shocks that will come to the fore?"

Riding where…in Japan? Japan reported its first quarter GDP grew .8% vs. the previous quarter, and 3.3% annualized, beating expectations on strong Asian exports. Industrial production fell a larger than expected 3.4% in March vs. the previous month. Consumer confidence fell to 35.2 in April vs. 37.0 the previous month. The central bank has policy firmly on hold.

Coming attractions. Monday brings data on leading indicators.