By Theresa Sheehan

PRINCETON (SMRA) – The week ahead includes several important
economic data releases — notably on retail sales, inflation, and
conditions in the factory sector — and the statement issued after the
meeting of the Federal Reserve’s Federal Open Market Committee.

Overall, there may be a better sense of economic conditions as the
fourth quarter 2011 progresses. However, concerns will remain about how
deeply the crisis in the euro zone will impact the growth in the U.S.
and financial markets.

The highlight of the economic data in the coming week is likely to
be that for retail and food sales in November at 8:30 ET Tuesday.
Stellar activity over the Black Friday weekend has heightened
expectations for a solid report as the holiday shopping season got off
to a start.

The same-store sales comparisons for fiscal November were
consistent with robust sales activity, although shoppers clearly were
sticking to looking for bargains. Motor vehicle sales were strong in the
month. Prices for gasoline declined, and will cut into the dollar level
of overall sales.

The data on inflation will also reflect the impacts of falling
gasoline prices, although to varying degrees. Rising prices for some
foods will be visible as well.

Data in import and export prices in November at 8:30 ET Wednesday
will see some upward pressure in imports as petroleum costs rose for the
month. Additionally, the uptick in the US dollar versus some currencies
will raise non-petroleum import costs somewhat.

The November PPI at 8:30 ET Thursday and the CPI at 8:30 ET Friday
will probably show only modest increases, at most. Contrary to the rise
in petroleum prices, the cost of gasoline has been declining and should
restrain any gains in the indexes’ respective overall energy categories.
Food prices have generally been rising only slightly, but a jump in the
cost of some fresh fruits and vegetable will probably offset declines
elsewhere.

We will get an early look at manufacturing activity in December
Thursday with the release of the New York Fed’s Empire State Survey at
8:30 ET and the Philadelphia Fed’s Business Outlook at 10:00 ET. We
anticipate that both reports will show readings for modest expansion as
they continue to move forward from the softer readings over the summer
months.

Industrial production and capacity utilization for November at 9:15
Thursday should be consistent with very modest gains in manufacturing
that are restrained by declines in utilities due to relatively mild
weather for the season and lower output for mining industries.

Initial jobless claims for the week ended December 10 at 8:30 ET
Thursday could raise hopes that some of the slack in labor markets is
finally beginning to tighten. Claims levels have been showing signs of
moving a bit lower, and the drop of 23,000 in the December 3 week was
substantial. While claims have yet to decisively move below the
psychologically important 400,000 mark for more than a few weeks before
going higher again, the underlying trend does appear to be more
favorable.

The weekly data for the ICSC/Goldman-Sachs Retail Chain Store Sales
Index for the week ended December 10 at 7:45 ET Tuesday will provide
another glimpse of how the holiday shopping season is progressing. While
the week ended November 26 — which contained a record breaking Black
Friday — was quite strong, the subsequent week ended December 3 lost a
lot of momentum. So far sales remain stronger compared to a year-ago,
but there is anecdotal evidence that the initial burst of spending is
not being maintained.

Business inventories for October at 10:00 ET Tuesday will add fresh
data on retail inventories. Those for manufacturers (+0.9%) and
wholesalers (+1.6%) have already been reported, and suggest that the
change in inventories in the GDP report will be a nice boost for growth
in the fourth quarter.

The remaining data for the week will probably have difficulty in
gaining much attention from markets.

The NFIB Small Business Index for November at 7:30 ET Tuesday
should be a bit higher than the 90.2 in October. The index continues to
inch back from the recent low in September, but levels still remain
consistent with a gloomy outlook for small businesses.

The current account data for the third quarter 2011 at 8:30 ET
Thursday will add the numbers for remittances abroad to what is already
known about the deficit in goods and services.

The Treasury International Capital System (TICS) report for October
at 9:00 ET Thursday should reflect the flight-to-quality that has
accompanied the increased volatility in global credit markets.

The monthly Treasury Statement will show another deficit for the
second month of fiscal year 2012. The budget has not been in surplus
since September 2008.

The FOMC will meet Tuesday. No change in the current policy for the
fed funds rate target range of 0%-0.25% through mid-2013 is expected,
nor is it expected that the Fed with expand its balance sheet through
more asset purchases. This is the final scheduled meeting in 2011. The
next is on January 24-25, 2012, at which the rotation of FOMC voters
will take place.

No other major central bank announcements are scheduled for
December except the Bank of Japan meeting on Tuesday and Wednesday,
December 20-21. By this time of year, central bank activity normally
quiets down until after the New Year. However, with the Eurozone crisis
continuing, it opens the possibility of more surprise announcements like
that related to central bank swap lines that took place on November 30.

The Board of Governors will meet around midday Monday to discuss
discount rate policy. It is possible — although at this point we
consider it less probable — that the Board will decide to cut the
discount rate by 25 basis points to bring it more in line with the rates
being charged for the dollar swap lines. The Board would need a request
from one of the District Banks to do so. Since Richmond Fed’s Jeffrey
Lacker dissented on enacting the change in the interest charged on the
swap lines due to the difference with the discount rate, it could be
that the Richmond District would register such a request.

Monday through Wednesday, respectively, the U.S. Treasury will
auction a new 3-year nominal note and reopenings of the 10-year notes
and 30-year bonds as the next leg of the quarterly refunding. A
reopening of 5-year TIPS notes will auction on Thursday. The Treasury
will announce new 2-, 5-, and 7-year notes on Thursday.

** Stone & McCarthy Research Associates **

[TOPICS: M$$FI$,M$U$$$,MAUDS$]