Equity markets yielded to some inevitable profit-taking at the end of the preceding week, despite good earnings news from the tech sector and further evidence of a non-inflationary business-cycle recovery in the United States that is certainly more advanced than what we have been seeing in Europe and Japan.

Next week, the key economic indicators will continue to support the picture of a gradual recovery with virtually no inflationary pressures. December producer prices should decline on lower gasoline prices, while building permits are expected to climb little higher.

Finally, towards the end of the week, the Conference Board’s leading indicator will register yet another large increase in December, and that will mark the ninth consecutive month of gains—a rather powerful indicator that the recovery does indeed have legs.

KEY U.S. DATA RELEASES THIS WEEK

Wednesday, January 20 – Producer Price Index (Dec.)

Total

• IHS Global Insight: -0.3%
• Consensus: 0.0%
• Last Actual: +1.8% (Nov.)

Core

• IHS Global Insight: +0.1%
• Consensus: +0.1%
• Last Actual: +0.5% (Nov.)

What to Look For

• Top-level prices expected to fall by 0.3%.
• Core prices to edge up by only 0.1%.

Implications

Producer prices are likely to fall 0.3% in December, as cheaper seasonally adjusted gasoline prices lead the energy category roughly 2% lower. Higher food prices should moderate the decline. Excluding food and energy, core prices are expected to edge 0.1% higher. The inventory adjustment is nearly complete, removing some downward pressure on prices. With production now picking up, prices should inch forward.

Wednesday, January 20 – Housing Starts and Building Permits (Dec.)

Housing Starts

• IHS Global Insight: 0.540 Mil.
• Consensus: 0.575 Mil.
• Last Actual: 0.574 Mil. (Nov.)

Building Permits

• IHS Global Insight: 0.599 Mil.
• Consensus: 0.580 Mil.
• Last Actual: 0.589 Mil. (Nov.)

What to Look For

• Housing starts to see a bad-weather-induced decline of 6.0%.
• Permits, however, should bounce up by 1.7%.

Implications

Once again, a swing in weather patterns will play the pivotal role in the housing starts numbers. According to the National Oceanic and Atmospheric Administration (NOAA), November 2009 was the third-warmest and 18th-driest November in 115 years. As a result, some homes that would have been started in December were instead started in November. But December's weather was also unusual. According to NOAA, "the nationally averaged temperature was 3.2 degrees below normal, as several punches of arctic air dove deep into the United States." The South, which accounts for about half of all starts, experienced its ninth-coolest December. Nationally, December was also the 11th-wettest December on record. Based on these weather patterns, we project that housing starts will fall about 6%, to a 540,000-unit annual rate. Permits, which are a better indicator of underlying trends and not influenced by weather as much as starts, should rise to 599,000.