Consumer Price Index Head Economic Data on Tap

After a light week of economic news last week, the nation’s bean counters are working hard this week to provide insight on the health of the U.S. economy.  Tuesday brought better than expected readings from the Producer Price Index, a measure of the cost of finished goods for manufacturers and wholesalers, and retail sales for the month of December.  Wednesday will bring more closely watched data that could impact market sentiment as investors key on Washington once again.

The Commerce Department said that the PPI dropped by a seasonally adjusted 0.2% in December, beating economist predictions of a 0.1% decrease.  The barometer of deflation has now falling for three straight months, including declines of 0.2% and 0.8% in October and November, respectively.  For all of 2012, producer prices only increased 1.3%, a stark contrast to the 4.7% increase for 2011.

Retail sales for December showed that consumers weren’t afraid of spending heading into the fiscal cliff.  For the month, retail sales rose 0.5% from November to a seasonally adjusted $415.7 billion, more than doubling the 0.2% increase that economists thought would happen.  A 1.8% increase in automobile sales was largely responsible for the monthly climb.  The increase certainly wasn’t because people were flocking to the stores doing Christmas shopping.  Department store sales only perked by 0.3% and were 1.7% lower than the year prior December.

The Federal Reserve Bank of New York said that its Empire State Manufacturing Index floundered to -7.78 in December from a revised -7.30 in November.  Negative readings indicate contraction in manufacturing activity in the New York City region.  Economist thought that the index would improve to -2.0 for the month.

The mixed results translated to a flat day for the markets on Tuesday.

On Wednesday, investors will be keenly watching the Consumer Price Index for December at 8:30 AM ET from the Bureau of Labor Statistics.  The CPI, regarded as a gauge of inflation, measures the change average prices for a fixed set of goods and services bought by consumers.  In October, the CPI rose 0.1% and was followed by a 0.3% decline in November.  Core CPI, which strips-out volatile subindexes like food and energy, rose 0.2% in October and 0.1% in November.  Wall Street is expecting to be flat for December and the core CPI reading to increase by 0.1% again.

Also on tap at 9:15 AM ET is the December reading of industrial production from the Federal Reserve, a measure of the output of industrial sectors, including manufacturing, mining and utilities (electric and gas).  Because of the sensitivity of industrial production regarding consumer demand, it is a closely watched indicator of future gross domestic product levels.  In November, industrial production rose 1.1% after posting a 0.7% slide in October, fueled in part by recovery from Hurricane Sandy that hit the East Coast late in October.   The Fed attributed nearly all of the movement in those two months to the superstorm.  Economists are expecting industrial production to increase 0.2% in December.

Those are the primary economic reports coming that can be considered “market moving.”  To a lesser degree, traders will be paying attention to the Housing Market Index from the National Association of Home Builders (survey participants rate the condition of the general economy and housing market); the Beige Book (a report on the economy that the Fed uses to assist in setting interest rate policy); and the Energy Information Administrations weekly report on petroleum inventories (which can impact crude prices and energy plays as they help delineate supply and demand).