U.S. stocks and exchange traded funds (ETFs) are in negative territory this morning on discouraging consumer spending news and a rising savings rate that could delay a recovery.
The Commerce Department reported that personal spending, incomes and savings all rose in May. This is great news regarding the economy, however, what investors are worried about is the surge in the savings rate, which soared to a 15-year high of 6.9%, while spending only rose a modest 0.3%. This trend means that consumers are wary of spending extra cash on discretionary items. On the plus side, higher savings lead to higher investment.  The news sent the SPDR S&P Retail (XRT) down nearly 0.07% in morning trading.

The news on consumer savings further trickled down and reinforced uncertainty on the demand for crude oil, forcing traders to be wary of the fate of black gold sending the price of a barrel of crude down to $69.80 in electronic trading on the New York Mercantile Exchange.  The US Oil Fund (USO) dropped 1.4% in morning trading.

There is yet more positive news coming in from the real estate sector.  Homebuilder giant KB Homes (KBH) stated that new home orders in the second quarter spiked 59% over first-quarter levels and cancellation rates decreased to 20%, down from 27% a year ago.  Despite this encouraging news, KB Homes reported a quarterly loss of $1.03 per share and missed analysts’ expectations of a loss of $0.64 per share.  As a result the SPDR S&P Homebuilders (XHB) dropped nearly 1.7% in intraday trading.

On a separate note, deflationary fears are hitting Japan as consumer prices fall at a record pace.  Japan’s key consumer price index, or the core nationwide CPI, fell by 1.1% from the previous year, extending out a three-month decline.  Additionally, the core CPI for Tokyo dropped 1.3% in June suggesting that prices throughout the nation are headed further south.  The news sent the iShares MSCI Japan Index (EWJ) down nearly 0.1% in morning trading.

The Dow Jones Industrial Average gave up nearly 0.7%, the S&P 500 dropped about 0.6% and the Nasdaq was down 0.2% in morning trading.

For more stories on retail and consumers, visit our retail & consumer category.

Kevin Grewal contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.