That in and of itself isn’t a bad thing. As I’ve written on several occasions, I’ve never seen another feasible option given that a major problem with the company has been its obligations under labor contracts. There are three concerns though.

There are many parts supply outfits whose main, if not only, customer is General Motors. It seems entirely possible that a bankruptcy at GM would create a cascading effect, leaving many of its smaller supplies insolvent. The ripple effect could potentially put tens of thousands of people out of work, at a time where there’s a dearth of employment options.

Secondly, what will happen to GM retirees? Currently, the automaker’s on the hook to pay about $7 billion a year over the next ten years. Going into the crisis GM’s pension fund was in reasonable shape, with more than $100 billion in assets, but in the wake of the market collapse that fund is likely to run short and may need to be backstopped by the government.

But the Pension Benefit Guaranty Corp (PBGC), the agency responsible for picking up the tap when companies can’t meet their obligations, is in about as bad of shape as GM itself. Based on current accounts, the PBGC could find itself on the hook for $29 billion for GM and Chrysler pensions given their current underfunded state, but the agency is underfunded itself. In fact, it was $33.5 billion in the hole itself as of the end of March.

And, in a bit of high comedy, Charles E.F. Millard, former director of the PBGC, is under Congressional investigation over his cozy relationships with Wall Street firms that were bidding for PBGC contracts.

In all, thousands of GM retirees could potentially see their pensions slashed as both the company and the government attempts to cope with the underfunding.

Finally, there’s the question of what GM’s management will look like post-bankruptcy. When GM emerges from court protection, the government could own as much as 50 percent of the company, of which it will take full advantage. At Chrysler, the government has taken the right to name four of the company’s nine directors in exchange for assisting the company’s bailout and it would be silly to expect any less in the GM deal. Additionally, in exchange for the United Auto Workers retiree health fund giving up its claim to at least $10 billion the company owes it, the fund will end up with as much as 39 percent of the restructured GM.

That does raise some questions as to how effectively the company may be operated with the government and the union essentially calling the shots.

All—in—all though, I wouldn’t expect a particularly negative overall market reaction to any news that GM’s gone to the courts. But suppliers to the automaker could be in for some tough times ahead.

The Data

The National Association of Homebuilders reported that confidence was growing amongst the nation’s homebuilders, with the associations housing market index rising from 14 to 16 percent in May. Builders voiced optimistic sentiments as affordability indexes remain at their best levels in years and mortgage rates hover near historical lows. Homebuilders hope that those favorable conditions coupled with an $8,000 tax credit for home buyers will help buoy the markets over the next six months.

That seems to be translating into action. Despite further contractions in housing starts and the issuance of building permits in April, the former is at its lowest pace on record and the latter fell 12.8, construction of single-family homes rose for the second straight month, up 2.8 percent. The major drag on the starts data was a sharp 42.2 percent drop in multifamily starts.

That slowdown in apartment and condominium construction is reflective of two problems; a clampdown on risky construction lending and an excess supply of single-family homes on the market.

Some anecdotal good news for residential also came from Lowe’s (NYSE: LOW) and Home Depot (NYSE: HD), both of which reported much better than expected earnings. Home Depot reported that profits rose 44 percent to 30 cents per share in the first quarter and reaffirmed full-year profit expectations. While Lowe’s reported a 22 percent decline in first quarter earnings, analysts had expected a much steeper drop. And though quarterly earnings were down, the company raised its full-year earnings expectations from between $1.04 and $1.20 to $1.13 and $1.25.

Jobs data continues to paint a muddled picture, coming in over economist’s forecasts last week though initial jobless claims continued declining. Initial claims fell to 631,000 from a revised 643,000 in the prior week, with continuing claims up to 6.662 million from 6.587 million.

The Conference Board’s index of leading economic indicators posted its first increase in seven months, up one percent in April. Seven of the indexes ten components rose last month, with the almost 10 percent rally in the equity markets making the largest contribution to the improvement.

Next week will bring a raft of real estate data, with Case-Shiller home price data on Monday, existing home sales data on Wednesday and new home sales on Thursday – all of which are expected to be down. The consumer confidence number is also due on Monday, with expectations for a bump up and goods orders on Thursday.