Markets ran a little too far ahead of their headlights in the preceding week relative to expectations of good news on the employment front. While the December drop in nonfarm payrolls had elements of a sobriety test after the New Year's rally, next week's activity indicators will be consistent with steady improvement in economic momentum, with solid positives expected on both December retail sales and industrial production.

Other reports will add further positive spin. December consumer prices expected to be close to flat—providing the Fed with yet another checkered flag to keep interest rates low for an extended period. Consumer sentiment in early 2010 should be lifted higher by a solid stock market and more positive sentiment on the economic outlook for 2010, even though the current employment situation will restrain the increase in sentiment to a few points.

KEY U.S. DATA RELEASES THIS WEEK

Tuesday, January 12 – Trade Balance (Nov.)

• IHS Global Insight: -$37.0 Billion
• Consensus: -$34.5 Billion
• Last Actual: -$32.9 Billion (Oct.)

What to Look For

• We expect the trade deficit to widen to $37.0 billion in November, from $32.9 billion in October.

Implications

September and October both saw exceptionally rapid increases in exports, and though we don't doubt that the export surge has further to run, we suspect that there will be a pause in November. In addition, we expect imports to move higher, partly because of higher oil prices, and partly because U.S. firms are now looking to rebuild their inventories.

Thursday, January 14 – Retail Sales (Dec.)

Total

• IHS Global Insight: +0.6%
• Consensus: +0.5%
• Last Actual: +1.3% (Nov.)

Less Autos

• IHS Global Insight: +0.4%
• Consensus: +0.3%
• Last Actual: +1.2% (Nov.)

What to Look For

• Retail sales likely increased 0.6% from November and 5.3% from their depressed year-earlier level.
• Excluding autos, the monthly gain was 0.4% and the year-on-year increase was 4.8%.

Implications

The 2009 holiday shopping season ended on a high note, as consumers flocked to stores in late December to redeem gift cards and find bargains. Warehouse clubs, discount chains, high-end department stores, and electronic shopping channels posted strong gains. About half of the ex-autos' year-on-year increase was due to the recovery in gasoline prices. Light-vehicle sales beat expectations, rising from an annual rate of 10.9-million units in November to 11.2-million units in December.

Friday, January 15 – Consumer Price Index (Dec.)

Total

• IHS Global Insight: +0.1%
• Consensus: +0.2%
• Last Actual: +0.4% (Nov.)

Core

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

What to Look For

• The consumer price index is expected to inch 0.1% higher in December.
• Excluding food and energy, core consumer prices likely rose 0.1%.

Implications

High unemployment and weak demand continued to keep inflationary pressures in check through the end of 2009. Energy prices remained silent through the holiday season, although food prices should record a slight gain. Excluding food and energy, core consumer prices likely rose 0.1%, still not showing any indications of an immediate inflationary threat. Barring a highly improbable surge, the biggest story from the upcoming report is bound to be the annual decline of the CPI in 2009—its first drop in 54 years.

Friday, January 15 – Industrial Production (Dec.)

• IHS Global Insight: +0.8%
• Consensus: +0.6%
• Last Actual: +0.8% (Nov.)

What to Look For

• Industrial production is estimated to rise 0.8% in December.

Implications

Total manufacturing hours-worked slipped in December, but productivity is surging and the utility sector got a big lift from frigid weather, following a milder-than-normal November. The ISM manufacturing survey says that December was a good month for the sector, and the ISM is more reliable than hours-worked when productivity is booming.

Friday, January 15 – Michigan Consumer Sentiment Index (Preliminary Jan.)

• IHS Global Insight: 75.5
• Consensus: 74.0
• Last Actual: 72.5 (Final Dec.)

What to Look For

• The index of consumer sentiment is projected to climb from 72.5 in December to 75.5 in early January,

Implications

The index is expected to reach its highest level in two years. Sentiment usually improves with the start of a new year, and 2010 should be no exception. A rising stock market is restoring household wealth, the economy is growing, and employment is near a turning point. Consumers are still very cautious, but their confidence is gradually rising.