Coming Up: "A Week of Hellish Economic Reports"

“On Wednesday, the government is scheduled to report retail sales for December, and economists expect a record sixth consecutive month of declines. While falling gas prices have relieved consumers to some extent, job losses are pinning down confidence to near-record lows, which translates to weak spending, wrote analysts with CIBC World Markets. "With the U.S. economy in the throes of its first consumer-led recession since the early 1990s, the 2008 holiday sales season has surely been a dud," according to CIBC. "With so many economic indicators pointing to a horrible fourth quarter no one expects this report to bring anything but bad news. The only real debate is how horrible it will be."

Analysts polled by MarketWatch are expecting a drop in retail sales of 1.7% for December, following a decline of 1.8% in November. Excluding autos, analysts are looking for a decline of 1.9%, compared with 1.6% in the prior month."Tumbling household net worth, rising unemployment and depressed consumer confidence continue to have an adverse impact on spending," wrote Bank of America analysts in a research note.

On Friday, consumer sentiment results come out for early January from the Reuters/University of Michigan survey. Although the reading improved in December, it remained at relatively low levels with consumers reporting that lower prices provided some needed relief, but continued job losses and income declines were worrisome. Analysts polled by MarketWatch expect the January data to retreat. "Deep holiday discounting boosted consumer sentiment in December, but we do not expect this to repeat in January. Continued volatility in financial market and horrific news with respect to the economy and labor markets should outweigh lower gas prices," according to a Credit Suisse research note.

On Friday, the Labor Department will report the consumer price index for December. Analysts polled by MarketWatch are looking for a drop of 0.9% on the back on lower gas prices, compared with a drop of 1.7% in the prior month. Excluding energy and food prices, analysts expect a second consecutive of no change. CIBC analysts expect a year-over-year drop for December, which would be the first decline since 1955. "The CPI has begun a massive retreat as a global economic recession hammers natural resource prices," according to CIBC. "This trend should continue over the coming months, but that being said the U.S. government's growing fiscal deficit poses huge inflation risks down the road as policy makers move to monetize a national debt load that has ballooned to deal with the current economic crisis."

On Thursday, the government will report on producer prices for December. Analysts polled by MarketWatch are looking for a decline of 2.4%, compared with a drop of 2.2% in November. Excluding energy and food, analysts expect the index to fall 0.1%, compared with a gain of 0.1% in the prior month. Lower energy prices mean that the PPI could fall more than 1% for the third consecutive month, according to Bank of America analysts. "The risk now is that a worsening in economic conditions brings about deflation," Bank of America analysts wrote.

Also Friday, the Federal Reserve will report industrial production data for December, and economists are expecting another drop. A recent report from the Institute for Supply Management showed that U.S. manufacturing activity dropped to a 28-year low in December. For November, the Fed reported that output fell 0.6% on broad-based weakness across manufacturing industries, and analysts polled by MarketWatch expect a December decline of 1.5%. "Manufacturing output should see a large decline because of the whopping 2.4% drop in manufacturing hours worked," according to Credit Suisse analysts. "This is consistent with December's nightmare ISM manufacturing report."

- http://www.marketwatch.com/news/story/story.aspx?guid=%7BD7BE5772%2DB293%2D4ED0%2DB36E%2DCE2FBA1F1EDC%7D&siteid=rss

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