“Knowledge is more than equivalent to force.”

– Samuel Johnson

CONSUMER & PRODUCER PRICES RISE
The U.S. inflation rate hit an 18-month peak in December: the federal government’s Consumer Price Index advanced 0.5%. Pump prices were a big factor in that gain: gasoline grew 8.5% more expensive last month. However, core CPI (minus food and energy prices) only rose 0.1% for the month, and consumers experienced just 1.5% inflation across 2010. The Producer Price Index went 1.1% higher in December, and energy costs were responsible for most of the gain. Core PPI (again, minus food and energy prices) was just +0.2% for December. Wholesale prices rose 4.0% in 2010.^1,2,3

ENCOURAGING RETAIL SALES FIGURES RELEASED
The Commerce Department announced a 0.6% gain in retail sales for December. While this was smaller than the 0.8% advance forecast by economists polled by MarketWatch, the increase wrapped up a positive year for the indicator. Retail sales have now improved for sixth months in a row, and 2010 was the best year for the category since 1999.⁴

GOLD SLIDES, BUT OIL RECOVERS
Gold is certainly off to a rocky start in 2011: as of Friday’s COMEX close, it was down 4.27% YTD to $1360.40 per ounce following news that China had tightened bank reserves. Oil, on the other hand, gained 3.99% last week to settle Friday at $91.54 a barrel on the NYMEX with prices up +0.18% YTD.⁵

NEWEST UMICH POLL UNDERWHELMS
The initial Reuters/University of Michigan consumer sentiment survey for January showed a little slip in consumer sentiment. It came in at 72.7, down from 74.4 at the end of 2010. Economists polled by Bloomberg News had reached a consensus forecast of 75.5.⁶

TWO WINNING WEEKS IN A ROW TO START 2011
A strong Friday contributed to nice weekly advances for the three major U.S. indices. The weekly numbers: DJIA, +0.96% to 11,787.38; NASDAQ, +1.93% to 2755.30; S&P 500, +1.71% to 1293.24. At Friday’s close, the S&P was at its highest level since August 28, 2008.⁷

THIS WEEK: Stock markets are closed Monday for the national holiday honoring Dr. Martin Luther King, Jr. Looking at the notable economic releases next week, we get data on December housing starts and building permits on Wednesday, and a look at December existing home sales, the latest index of leading indicators from the Conference Board and the latest initial and continuing claims reports on Thursday.

Last week’s riddle:

Complete these words by putting the same three letters into each one: F—RISH, C—DY, S—GH.

Last week’s answer:

The missing letters are LOU, and the words are FLOURISH, CLOUDY and SLOUGH.

This Week’s Riddle (Put your answer in the comments section below):

An interesting occurrence happened about 25 minutes before 1:00pm on May 6, 1978, and it involved numbers on the clock and months and years on the calendar. What was this numerically interesting moment?

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MAJOR INDICES POST DOUBLE-DIGIT GAINS IN 2010
For the second year in a row, bulls ruled Wall Street. When the closing bell sounded on December 31, the S&P 500 was at 1,257.64, having gained 12.78% for 2010. The Dow finished 2010 at 11,577.51, representing an 11.02% year-over-year advance. The NASDAQ wrapped up 2010 at 2,652.87, posting a 16.91% yearly gain. The Russell 2000 also had a terrific year, finishing +25.31% after going +7.79% for December.¹

FEWER INITIAL CLAIMS … AND LESS CONFIDENCE?
While the University of Michigan’s final December consumer sentiment survey showed consumer confidence at a 6-month peak, the Conference Board’s December poll declined to a 52.5 reading. Perhaps as RBS Securities Inc. economist Omair Sharif noted at Bloomberg.com, “we should watch what consumers do and not what they say.” Here’s a development that might improve consumer sentiment: weekly jobless claims dropped to a 2-year low in the week that ended Christmas Day. The 388,000 initial claims filed that week were the smallest number since July 2008.^2,3

IMPROVED PENDING HOME SALES
The National Association of Realtors reported a 3.5% increase in the category for November. NAR’s pending home sales index still came in 5.0% below its November 2009 mark, but this was the second straight monthly improvement.⁴

CASE-SHILLER: HOME PRICES DOWN 0.8%
The latest Standard & Poor’s/Case-Shiller home price index shows an 0.8% decline in housing prices across 20 cities from October 2009 to October 2010. A 1.0% overall decline in prices last October contributed to the year-over-year retreat.⁵

OIL, GOLD & COPPER OUTPACE STOCKS
Gold prices rose 29.76% on the COMEX in 2010. That is the best year for gold since 2007; the precious metal climbed $41.10 last week to finish December at $1,421.10 per ounce. Oil futures went +14.27% in the fourth quarter to finish the year up 15.15% at $91.38 a barrel. Copper gained 33.42% in 2010, concluding the year at $4.44 per pound.⁶

COMING THIS WEEK: Monday brings the Institute for Supply Management’s December manufacturing report and data on November construction spending. Tuesday, we get data on November factory orders, the most recent FOMC minutes and new estimates of auto and truck sales. Wednesday brings the ISM December service sector report. Thursday, we have new initial and continuing claims numbers. Friday, we get the December unemployment report from the Labor Department.

WEEKLY RIDDLE

By rearranging the letters in the phrase VIEWING A STIR, you can make the name of a U.S. state. What state is it? (This state has 12 letters in its name.)