The good news from the preceding week's stories is that the Fed has no reason to blink in terms of keeping the pedal to the metal on monetary policy. Indeed, the 10-year bond yield, which had sailed up to 3.50% on Wednesday in response to the head fake from the ADP's December payrolls report, plummeted to 3.33% on Friday. That will take some pressure off of mortgage rates.

The stock market took the bad employment figures in stride, falling by only 23 points on Friday, and still managed a modest gain in the week ended Friday.

Next week, the reports on the economy should be, on net, positive. We expect very solid gains in December retail sales and industrial production, while the November trade balance should narrow slightly. Price reports will get a big upward jolt from higher oil and energy prices, but core prices will remain tame. Consumer sentiment is expected to take a modest step back in early January, as gasoline prices recently exceeded the pain threshold of $3.00/gallon, while housing and employment markets remain problematic.

KEY U.S. DATA RELEASES THIS WEEK

Thursday, January 13 – Trade Balance (Nov.)

• IHS Global Insight: -$38.0 Billion
• Consensus: -$41.0 Billion
• Last Actual: -$38.7 Billion (Oct.)

What to Look For

• We expect the trade deficit to narrow slightly, from $38.7 billion in October to $38.0 billion in November.

Implications

Both exports and imports will likely move higher, but exports should rise slightly faster. We expect some easing in consumer goods imports after a sharp jump in October. For the fourth quarter, foreign trade is shaping up as a major plus for GDP growth, as export growth has bounced back after a quiet third quarter, while import growth has slowed.

Thursday, January 13 – Producer Price Index (Dec.)

Total

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

Core

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

What to Look For

• Top-level prices to see oil-related spike.
• Core prices to climb by 0.3%.

Implications

The producer price index should spike 1.2%, with oil the major culprit. Core prices should climb 0.3% due to another move by motor vehicle prices back toward normal, after the change-of-model-year plunge in October. But the big shove will come from double-digit gains in gasoline, diesel, and heating oil because of higher crude oil prices. Another climb in food prices will not help, but oil will be the major culprit.

Friday, January 14 – Retail Sales (Dec.)

Total

• IHS Global Insight: 0.9%
• Consensus: 0.8%
• Last Actual: 0.8% (Nov.)

Less Autos

• IHS Global Insight: 0.8%
• Consensus: 0.7%
• Last Actual: 1.2% (Nov.)

What to Look For

• Retail sales are expected to increase by 0.9% in December, and by 0.8% excluding autos.

Implications

Auto sales are expected to increase 1% in December after falling 1% last month. Sales at gas stations were pushed up by higher gasoline prices. Brick-and-mortar retail channels have done well despite the winter storm that blasted the Northeast after Christmas. Consumer momentum is building due to better news on the employment front, a strong stock market performance, and low nonmortgage debt relative to disposable income. However, consumers are not throwing caution to the wind, because the unemployment rate remains high, the housing market poor, and credit conditions tight.

Friday, January 14 – Consumer Price Index (Dec.)

Total

• IHS Global Insight: 0.6%
• Consensus: 0.4%
• Last Actual: 0.1% (Nov.)

Core

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

What to Look For

• Overall CPI to jump by 0.6%, mainly due to energy prices.
• Core CPI to creep 0.1% higher.

Implications

The core CPI should only creep 0.1% higher, but a 5.0%-plus jump in energy prices should push overall consumer prices up 0.6%. Gasoline prices probably rose about 9%; pump prices climbed more than 12 cents/gallon, and since prices normally fall in December, the seasonal adjustment process will amplify these gains. Core inflation remains quiet, though, as producers are fighting for business and retailers beat each other up for market share.

Friday, January 14 – Industrial Production (Dec.)

• IHS Global Insight: 0.7%
• Consensus: 0.5%
• Last Actual: 0.4% (Nov.)

What to Look For

• Industrial production to pop up 0.7%.

Implications

Industrial production should climb 0.7% in December, with a very cold month (the coldest December since 2000) spiking utility output more than 3% higher. The manufacturing sector should have a decent month too, with some help from motor vehicles, taking overall manufacturing up 0.5%, in line with bullish production reports from the ISM survey.

Friday, January 14 – Michigan Consumer Sentiment Index (Preliminary Jan.)

• IHS Global Insight: 73.0
• Consensus: 75.5
• Last Actual: 74.5 (Final Dec.)

What to Look For

• The preliminary Reuters\University of Michigan consumer sentiment index is expected to slip to 73.0, from December's reading of 74.5.

Implications

Consumer sentiment is being undermined by high gasoline and food prices and a poor housing market, despite strong holiday sales and better news on the employment front.