Despite the vigorous handwringing about the Federal Reserve's second round of quantitative easing (QE II), the U.S. dollar rebounded and gold/commodity prices dropped sharply at the end of the week, about the same time that the Fed started its first round of bond purchases under QE II totaling $7.3 billion. The Fed will be purchasing bonds fairly aggressively through the first week of December, with a plan to accumulate about $105 billion ($75 billion under the new program and a projected $30 billion related to principal repayments from mortgage-backed securities).

Financial markets and pundits appear to have found a way to detach themselves from the economy—not terribly surprising. But recent indicators on business conditions, labor markets, and consumer sentiment are showing clear signs of improvement, indicating that a low frequency improvement in the domestic economy is still underway.

Indicators for the upcoming week should have a mildly positive spin, with retail sales expected to be up solidly in October, while industrial production should rebound from a September relapse. Core inflation indicators for October are expected to stay tame, which should calm irrational fears about a sudden outbreak in inflation. News on the housing front is expected to be mixed, with a decline in October starts tempered by an expected increase in building permits.

KEY U.S. DATA RELEASES THIS WEEK

Monday, November 15 – Retail Sales (Oct.)

Total

• IHS Global Insight: 0.7%
• Consensus: 0.7%
• Last Actual: 0.6% (Sep.)

Less Autos

• IHS Global Insight: 0.5%
• Consensus: 0.4%
• Last Actual: 0.4% (Sep.)

What to Look For

• Retail sales are expected to increase 0.7% in October overall, and by 0.5% excluding autos.

Implications

Auto sales increased last month due to a continuing release of pent-up demand. Sales at gasoline stations were pushed up by higher prices. Building material outlet sales growth probably decelerated, and other brick-and-mortar retail channels are expected to exhibit only modest growth in October, after a relatively strong September and August. Consumers are still cautious, their confidence is at low levels, and October's warm weather was not helpful for winter merchandise. In order to boost sales, some larger outlets have already started Black Friday-type discounting.

Tuesday, November 16 – Producer Price Index (Oct.)

Total

• IHS Global Insight: 1.2%
• Consensus: 0.8%
• Last Actual: 0.4% (Sep.)

Core

• IHS Global Insight: 0.1%
• Consensus: 0.1%
• Last Actual: 0.1% (Sep.)

What to Look For

• A spike in energy prices will push the headline number up by 1.2%.
• Core prices to have edged up 0.1%, but vehicle prices are a wildcard.

Implications

Core inflation is quiet at the producer level (0.1%), except in energy and agricultural products, but a spike in energy prices should push headline finished goods up 1.2%. Gasoline prices spiked at the wholesale level in October, and fuel oil and propane joined in with large gains. Natural gas prices retreated again in October, but were swamped by surging oil-based fuel prices. Food prices climbed again, while a long list of crude materials will show gains as global commodity prices renew their advance. Vehicle prices will be a wild card this month, because the model-year changeover introduces an extra element of uncertainty.

Tuesday, November 16 – Industrial Production (Oct.)

• IHS Global Insight: 0.2%
• Consensus: 0.3%
• Last Actual: -0.2% (Sep.)

What to Look For

• Total industrial production should advance 0.2% in October, driven up by manufacturing, which should have had a good month.

Implications

Vehicle output climbed a modest amount, and aggregate production worker hours at manufacturers climbed 0.3%, which should have boosted manufacturing output about 0.4%. Headline production will be held back by warmer-than-normal weather that cut electricity and natural gas output.

Wednesday, November 17 – Consumer Price Index (Oct.)

Total

• IHS Global Insight: 0.3%
• Consensus: 0.3%
• Last Actual: 0.1% (Sep.)

Core

• IHS Global Insight: 0.1%
• Consensus: 0.1%
• Last Actual: 0.0% (Sep.)

What to Look For

• The overall CPI likely rose 0.3% last month.
• Core inflation to have crept up 0.1%.

Implications

The CPI should climb 0.3%, with both food and energy (mostly energy) pushing the headline number well above a token 0.1% rise in the core index. Gasoline, heating oil, and diesel fuel climbed between 3% and 5%. Meanwhile, some pass-through of higher food commodity prices should become increasingly evident at the consumer level.

Wednesday, November 17 – Housing Starts and Building Permits (Oct.)

Housing Starts

• IHS Global Insight: 0.598 Mil.
• Consensus: 0.600 Mil.
• Last Actual: 0.610 Mil. (Sep.)

Building Permits

• IHS Global Insight: 0.566 Mil.
• Consensus:0.570 Mil.
• Last Actual: 0.539 Mil (Sep.)

What to Look For

• We expect housing starts to have fallen about 2% in October.

Implications

Single-family housing permits have dropped six months in a row, suggesting that single-family starts should pull back. Multi-family starts are also likely to be down, because they have been climbing much faster than permits over the past three months. With the economy adding more jobs, and the payback period from the second tax credit behind us, permits are likely to improve going forward. For October, we project that permits increased 3.5%, to a 566,000 annual rate.