Economic data is the focus this week and things got off to a busy start on Tuesday. Traders got a broad range of data to digest including inflation data at the producer level, manufacturing activity in the New York region and retail sales. Before we provide the details in these reports, take a look at the economic calendar this week.

Monday: None

Tuesday: Producer Price Index, Retail Sales, Empire State Mfg. Survey, Business Inventories, ICSC-Goldman Store Sales, Redbook

Wednesday: MBA Purchase Applications, Consumer Price Index, Current Account, Treasury International Capital, Industrial Production, EIA Petroleum Status, Housing Market Index

Thursday: Jobless Claims, Housing Starts, Philadelphia Fed Survey

Friday: None

The same-store sales data for the week ending Sept. 12 showed improvement with the ICSC-Goldman report up 1.6 percent year on year. The Redbook report saw a decline of 1.9 percent, but this was the best reading for this report since April. This data helps support the view that consumer spending is finally stabilizing and this was confirmed by the retail sales report for August.

Retail sales during the month of August rose 2.7 percent compared with a decline of 0.1 percent in July. Economists were expecting gains, but at a 2.0 percent rate. The "Cash for Clunkers" program definitely helped sales, but with autos excluded, sales were still up 1.1 percent, well above estimates for growth of 0.4 percent. When autos and gasoline are excluded, sales still rose 0.6 percent. In the past year, retail sales are down 5.3 percent overall and 6.2 percent excluding autos. Though negative, both figures are improvements from July. A rough jobs market has kept spending in check, but August's data is positive and shows that consumers are becoming more optimistic.

Economists have been noting that inflation will become a major concern once the economy recovers given the billions put into the system by the Fed and government. Energy prices in August boosted the producer price index, which rose 1.7 percent, more than double expectations. The core rate, which excludes food and energy, rose a milder 0.2 percent. In the past year, the PPI is down 4.3 percent overall and up 2.3 percent at the core. Traders will get more data on inflation Wednesday when the consumer price index is released. Estimates are for the CPI to rise 0.4 percent overall and 0.1 percent at the core.

Manufacturing activity in the New York region showed strength in the form of the Empire State Mfg. Survey. This index rose to 18.88 in September, up from 12.08 in August. Economists were looking for a reading closer to 14 with any reading above 0.0 a sign of expansion. Within the report, the inventories component remained negative at -25.00, showing that manufacturers continue to destock. This should lead to a pickup in production when demand improves. In April, the Empire index sat at -14.7, so we have seen strong improvement.

Data on manufacturing will continue to be a focus this week with the industrial production report due out Wednesday. Economists are expecting industrial production to improve 0.7 percent for August after a 0.5 percent gain in July. July ended more than half a year of negative readings. On Thursday, the Philly Fed Survey will be released with economists expecting a reading of 8.0, up from 4.2 in August.

Other important reports due out this week include weekly jobless claims and the housing starts release. Jobless claims are expected to rise to 575,000, up from 550,000 in the prior week. Housing starts are expected to rise slightly to a level of 600,000 annualized units, up from 581,000 in July. The housing market indices could provide some insight to the sector when it is released on Wednesday.

Overall, traders have been optimistic, pushing stocks up in 2009. However, there comes a time when traders will want to see that the recession has ended and that the economy is returning to normalcy. So far, stocks have risen due to data showing improvement, but still negative. The key factors will be the housing sector and the employment sector, which have been lagging the overall economic recovery.

Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site