RuthMantell

WASHINGTON (MarketWatch) — With stock prices rising and job losses slowing, consumers have perked up. But they’re not getting carried away.

While recent signs indicate the economic gloom is lifting, sentiment remains relatively weak and consumers are staying cautious. Data to be released this week are expected to show that retail sales and consumer sentiment are improving, though neither report will shine by economists’ reckonings.

The green shoots of U.S. economic recovery are a little less green for American consumers, according to a research note from CIBC World Markets. Personal spending is no longer in freefall as it was at the end of 2008, but the ongoing contraction in U.S. consumer spending emphasizes that talk of a full-fledged economic recovery is premature.

Despite some gains, spending by consumers could be weak or even turn negative, according to analysts.

Although the worst may be over for U.S. consumers as increased government transfer payments help boost incomes, we expect personal consumption to remain weak for some time to come, CIBC analysts wrote. Despite the market’s recent bout of optimism, the general consumer environment remains challenging.

On Thursday, the government will report retail sales for May, and analysts surveyed by MarketWatch are looking a gain of 0.6%, a reversal compared with the decline of 0.4% in the prior month.

Analysts expect that much of the gain in May can be attributed higher auto sales and a rise in gas prices, however, rather than splurging by consumers. At Credit Suisse, analysts are looking for a retail sales gain of 0.1% when excluding autos and gas.

Outside of autos and gas, we expect sales of necessities, like food and drugs, to offset softness elsewhere as chain store results disappointed, according to a Credit Suisse research note. This breakdown for underlying sales should not be surprising since paychecks have been shrinking.

On Friday, the University of Michigan and Reuters will report an estimate of consumer sentiment for June, with analysts anticipating a continuation of the increases seen in recent reports.

Confidence readings of late have been boosted by consumers’ expectations that the ravaged economy has nowhere to go but up, rather than by a belief that good times are already here. And despite gains in sentiment readings, overall levels remain relatively low, curbing consumers’ buying plans.

In May, the UMich sentiment reading hit 68.7, compared with an average of 88.2 over the last 10 years. For June, analysts polled by MarketWatch are looking for a result of 71.

The persistent rally in the equities market since March has likely boosted confidence, according to a Barclays Capital research note. That said, the recent rise in gas prices could increase near-term inflation expectations and thus pose downside risk to our forecast.

Trade balance

Otherwise, it’s a relatively light week for economic data.

On Wednesday, the government will report the trade balance for April, and analysts polled by MarketWatch are looking for a slightly wider deficit as imports pick up a bit more than exports.

The thawing in the global recession could support both imports and exports, the former more than the latter, given some signs of bottoming in U.S. domestic demand, according to Credit Suisse analysts. Also, boosting imports is a price-related rise in oil.

Analysts are looking for an April trade deficit of $28.8 billion, compared with $27.6 billion in March. The deficit has narrowed by about half over the past year as American consumers have cut back.