Dollars and Sense: Companies are spending money, but will consumers?

M&A news. The economic news was pretty good last week, but the stock markets’ performance was mixed. Among the positive economic news: We got more indications that merger and acquisition activity remains strong as both Tyson Foods and Merck Pharmaceuticals announced multibillion-dollar deals. Tyson said it is buying Hillshire Brands for a transaction it values at $8.5 billion, and one that’s been in the news for weeks as Tyson competed with Pinnacle Foods for the acquisition. Merck is buying Idenix Pharmaceuticals, a company developing drugs to treat hepatitis C, for about $3.85 billion. The M&A activity indicates companies believe the economy is growing fast enough that owning companies—or investing that cash in other ways—is now better than having it on their balance sheets.

More positive signs. Economic reports were also mostly positive. Among them, news that job openings have hit their highest level since September 2007—before the financial crisis. Employers had 4.5 million jobs openings in April, up from 4.2 million in March. Another positive economic sign came from the U.S. Commerce Department, which reported wholesale inventories increased for the 10th straight month. Sometimes, increased inventories mean sales are slowing. But retail sales rose 0.3 percent in May, the Commerce Department said Thursday. Most analysts are taking the stockpiles as a sign that wholesalers and retailers expect increased activity in the months ahead.

So why the Wall Street blues? All that sounds good, but, as I said, the performance of the markets was decidedly mixed. Why? The answer is expectations. For example, the retail sales number rose, but not as much as a survey of economists predicted. It’s also worth noting that this week we had some renewed global concerns. The situation in Iraq deteriorated, of course, and the World Bank lowered its global growth forecast from a previously reported 3.2 percent to the new level of just 2.8 percent. A weak, weather-related first quarter here at home caused The National Association for Business Economics to lower U.S. growth estimates too. All of which is to say that in the weird world of Wall Street expectations, sometimes even good news is bad news, or just not good enough news.

The Week Ahead. Today we get two interesting reports: industrial production and capacity utilization. These two reports from the Federal Reserve will give us an indication of the health of the manufacturing sector. Tomorrow we’ll get reports on housing starts and building permits for May. Also tomorrow we get the Consumer Price Index number, which will give us a gauge on inflation, a number that a lot of private contracts use for cost-of-living adjustments. So it’s a pretty big week for economic reports, and if they all point in the same direction, we could see some market movement.