The week had limited economic news and market focus was on Greece and whether that country had finally come to terms with an austerity plan that would qualify it for rescue funds from international agencies.  Progress for Greece was tentative until Thursday when a final deal was announced with favorable reaction in the markets. But Thursday night, international agencies said the Greek plan fell short despite public comments otherwise.  Economic news in the U.S. was mixed but largely pointed to continued economic growth.

Recap of US Markets

STOCKS

After what appeared at first to be a net positive week, stocks ended in the red after the collapse of a deal to resolve the Greek debt crisis.

At week’s start, stocks were lower on lingering uncertainty over whether Greece would accept the terms of a bailout to avoid default on sovereign debt. Another deadline came and went in Athens over the weekend as political leaders failed to respond to bailout terms from the European Union and International Monetary Fund.  Most indexes rose Tuesday as talks between Greece and its creditors on a loan deal appeared to be nearing a conclusion Tuesday, though political leaders postponed a meeting until Wednesday.  Yum! Brands Inc., owner of the KFC and Taco Bell fast-food chains, also added lift to stocks as company earnings surged 30 percent.  Equities again rose at mid-week as a Greek debt deal appeared to be closer to finalization.

Stocks were mixed Thursday but mostly up. Greek officials finally agreed to an austerity plan that was believed to meet international agency requirements to secure rescue funds. Initial jobless claims in the U.S. unexpectedly dropped and supported equity gains. Also, the Obama administration, individual states, and major banks (under scrutiny for so-called robo-signings of foreclosure documents) finalized a foreclosure deal. Some homeowners will see their loan balances reduced or will get refinancing. Importantly, banks will now be able to proceed with foreclosure sales and help the housing market to heal. Agreeing to the settlement were Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, and Ally Financial. Negotiations continue with other major mortgage servicers to join the settlement.  Somewhat weighing on stocks, however, was news from China that its inflation rate had picked up, dashing hopes that China would loosen monetary policy. However, progress on Greek debt turned out to not be finalized as earlier believed. 

Thursday night, international agencies rejected Greece’s austerity plan as inadequate, pushing equity futures down sharply. Stocks followed through and ended the last trading day down with an unexpected dip in consumer sentiment also weighing on stocks.  Also, Standard & Poor’s downgraded 34 Italian banks, adding to the down drift.  European and Greek officials were expected to continue discussions over the weekend but few expected final resolution before market open the upcoming week.

Equities were down this past week. The Dow was down 0.5 percent; the S&P 500, down 0.2 percent; the Nasdaq, down 0.1 percent; and the Russell 2000, down 2.1 percent.

For the year-to-date, major indexes are up as follows: the Dow, up 4.8 percent; the S&P 500, up 6.8 percent; the Nasdaq, up 11.5 percent; and the Russell 2000, up 9.8 percent.

Markets at a Glance

Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.

BONDS

With limited economic news during the week, Treasury rates largely reacted to developments in Europe.  While yields ended the week up, yields started on a down note Monday on worries that Greece would not finalize an austerity plan to qualify for rescue funds from international agencies. Rates firmed Tuesday on reversal of flight to safety on news that Greece was close to finalizing an austerity plan. 

After a quiet Wednesday, yields edged up further Thursday on growing belief that Greece would meet demands of international agencies for rescue funding.  Also, initial jobless claims unexpectedly dropped.  But rates fell Friday on flight to safety after the rejection of Greece’s austerity plan.  Nonetheless, rates ended the week up slightly.

For this past week Treasury rates were up as follows: 3-month T-bill, up 1 basis point; the 2-year note, up 4 basis points; the 5-year note, up 4 basis points; the 7-year note, up 2 basis points; the 10-year note, up 4 basis points; and the 30-year bond, up 1 basis point.

OIL PRICES

The spot price of crude posted a very modest gain for the week.  Prices often tracked perceived progress or lack of progress on resolving the Greek debt deal.  West Texas Intermediate dipped Monday on fears that a Greek debt deal was stalling.  Tuesday, the dollar dropped on comments by Fed Chairman Ben Bernanke that the labor market is weaker than indicated by the latest reading of 8.3 percent unemployment.  The weaker dollar boosted oil prices as did belief of progress on Greece.  At midweek, lower than expected oil inventories nudged up WTI.

Thursday, crude was lifted by an unexpected drop in initial jobless claims.  Also, Greek officials declared that a deal had been finalized for an austerity plan to qualify the country for an international rescue fund.  Well after market close Thursday, European agency officials announced that the Greek proposal fell short of rescue fund requirements, bumping WTI down Friday.

Net for the week, the spot price for West Texas Intermediate rose 83 cents per barrel to settle at $98.67.

The Economy

The limited economic news focused directly or indirectly on the consumer and two out of three were positive for the consumer sector.  Also, the latest trade report indicated that export growth continues.

International trade deficit widens but on some positive details

In December, the U.S. trade deficit worsened in December due to a jump in imports outpacing a rise in exports.  However, the import detail suggests businesses expect stronger demand ahead. And many manufacturers should be happy that exports are growing. The trade gap expanded to $48.8 billion from $47.1 billion in November (originally $47.8 billion).  Exports rebounded 0.7 percent after declining 1.0 percent in November.  Imports advanced 1.3 percent in December, following a 1.0 percent gain the prior month.

The worsening in the trade gap was led by the nonpetroleum goods deficit which widened to $36.5 billion from $34.1 billion the month before.  The petroleum gap narrowed to $26.9 billion from $27.6 billion in November.  The services surplus was essentially unchanged at $15.5 billion.

The rise in imports was led by capital goods excluding autos with consumer goods a close second.  Apparently, businesses are a little more optimistic about boosting investment and also are planning on gains in consumer spending.

On the export side, strength was seen in industrial supplies and autos.  Notable declines were seen in consumer goods and in capital goods excluding autos.

For the year, the deficit with China hit a record yearly total of $295.5 billion, reflecting increased dependence on that country for manufactured goods.

Consumer credit posts another strong gain

Consumers are feeling good enough about the economy and their job security to take on more debt.  Also, an aging auto fleet is supporting car loans.

Credit outstanding rose $19.3 billion in December following November's breakthrough gain of $20.4 billion. Both months saw significant gains for revolving credit (mainly credit cards), up $2.8 billion in December following November's $5.6 billion surge. Until recently, consumers had been tight with credit card usage.  Also, banks have slowed the pace of write-offs of bad debt.

Non-revolving credit jumped $16.6 billion in December, reflecting healthy auto sales. The rise in consumer credit, if extended and moderate, would be a new and very big plus for the recovery.

Consumer sentiment steps back in early February

The latest consumer sentiment numbers are curious. While employment gains have been improving and initial jobless claims have been declining, the early February consumer sentiment number dipped. Maybe it is the somewhat higher gasoline prices or perhaps consumers are tired of presidential election activity already. But the latest sentiment number is an inconsistency.

The consumer sentiment report certainly did pick up the economic strength of December and especially January—but now in a disappointment the composite index for early February slipped 2.5 points to 72.5.

The current conditions component fell 4.6 points in the mid-February reading to 79.6, down 5.5 percent to completely reverse January’s gain and take the level back to December. Yet the December level was not so bad compared to softer readings in November and October of 77.6 and 75.1. The December reading was an 11 month high.

The mid-month expectations component slipped 1.6 percent to 68.0 from January’s 69.1 but was still well above December’s 63.6 and especially October’s 51.8. The composite index slipped 2.5 points to 72.5.

The latest consumer sentiment number from the University of Michigan is in contrast to the latest weekly Bloomberg Consumer Comfort Index which hit a one-year high.  Some economists speculate that the consumer sentiment index has seasonal adjustment difficulties this time of year.

The bottom line

Market focus largely was on Greece with heavy disappointment at week’s end.  Limited economic news for the U.S. was mixed.  While the international trade deficit worsened, it appears to have expanded for the right reason—expected stronger demand.  Consumer credit growth points to a more confident consumer even though the latest consumer sentiment reading slipped.

Looking Ahead: Week of February 13 through 17 

Investors will be looking for a rebound when Tuesday's retail sales data are released. Empire State and industrial production (Tuesday) are followed by the Philadelphia Fed survey on Thursday for an exam of manufacturing's health. Housing starts and producer prices also add to Thursday's plethora of new information. The CPI wraps up the data week on Friday. At mid-week, as always, the Fed's FOMC minutes will be parsed closely.

Tuesday

The NFIB Small Business Optimism Index in December rose 1.8 points to 93.8 for a fourth straight monthly advance.  Gains were centered in earnings, sales expectations, and expectations for economic improvement

NFIB Small Business Optimism Index Consensus Forecast for January 12: 95.0

Range: 94.5 to 96.8

Retail sales in December edged up 0.1 percent, following a 0.4 percent rise in November and 0.7 percent gain in October.  The latest strength came from motor vehicles which increased 1.5 percent, after a 0.9 percent rise the prior month.  Excluding autos, retail sales actually fell 0.2 percent in December after increasing 0.3 percent in November and gaining 0.5 percent in October. Gasoline sales dropped 1.6 percent after a 0.9 percent increase in November.  Sales excluding autos and gasoline in December were flat, following a modest 0.2 percent increase in November. Looking ahead, the auto component is likely to lift overall retail sales for January, based on unit new motor vehicles jumping a monthly 4.6 percent.

Retail sales Consensus Forecast for January 12: +0.7 percent

Range: +0.3 to +2.0 percent

Retail sales excluding motor vehicles Consensus Forecast for January 12: +0.6 percent

Range: +0.2 to +1.8 percent

Less motor vehicles & gasoline Consensus Forecast for January 12: +0.5 percent

Range: +0.3 to +0.7 percent

Import prices dipped 0.1 percent in December. Excluding petroleum, import prices rose a very mild 0.1 percent following 0.2 percent declines in the prior two months. Price pressures of imported finished goods rose but only slightly to still subdued monthly rates of 0.2 percent for both imported capital and imported consumer goods. Prices for imported vehicles rose only 0.1 percent.

Import prices Consensus Forecast for January 12: +0.3 percent

Range: -0.2 to +0.7 percent

Export prices Consensus Forecast for January 12: +0.1 percent

Range: -0.2 to +0.3 percent

Business inventories rose 0.3 percent in November as did business sales, keeping the stock-to-sales ratio unchanged for a fifth straight month at a lean 1.27.  Among components, retail inventories rose 0.3 percent in November in line with a 0.4 percent rise for sales. Component data show a moderate 0.5 percent build in factory inventories and a marginal 0.1 percent build in wholesale inventories.  More recently, manufacturers’ inventories edged up 0.1 percent in December while wholesalers’ inventories jumped 1.0 percent for the same month.

Business inventories Consensus Forecast for December 11: +0.5 percent

Range: 0.0 to +0.8 percent

Wednesday

The Empire State manufacturing index in January rose more than 5 points to 13.48 with the 6-month outlook up nearly 10 points to 54.87. And there was improved forward momentum. The new orders index jumped almost 8 points to 13.70—well into positive territory.

Empire State Manufacturing Survey Consensus Forecast for February 12: 14.75

Range: 10.00 to 18.00

Industrial production in December rebounded 0.4 percent after dipping 0.3 percent in November.  Importantly, the key manufacturing component made a 0.9 percent comeback, following a 0.4 percent drop in November.  In December, utilities fell 2.7 percent while mining output expanded 0.3 percent.  Overall capacity utilization rebounded to 78.1 percent from 77.8 percent for November.

Industrial production Consensus Forecast for January 12: +0.7 percent

Range: +0.3 to +1.2 percent

Manufacturing production component Consensus Forecast for January 12: +1.0 percent

Range: +0.6 to +1.5 percent

Capacity utilization Consensus Forecast for January 12: 78.6 percent

Range: 78.2 to 79.0 percent

NAHB housing market index rose 4 points in January to 25. This was the best reading in 4-1/2 years and the 4th straight gain against September's recovery low of 14.  Gains swept components: present sales, future sales, traffic.

NAHB housing market index Consensus Forecast for February 12: 26

Range: 25 to 28

The Minutes of the January 24-25 FOMC meeting are scheduled for release at 2:00 p.m. ET.  Traders will be parsing the internal Fed debate on its new communications policies on inflation targeting, forecasts for fed funds, and forecasts for the timing of the next rate change.  And any comments on potential QE3 will get market attention.

Thursday

Housing starts in December declined 4.1 percent, after surging 9.1 percent in November.  December’s annualized pace of 0.657 million was up 24.9 percent on a year-ago basis. The dip in the latest month was led by a 20.4 percent drop in the multifamily component, following a 23.0 percent boost in November. The single-family component advanced 4.4 percent after rising 3.0 percent the month before.  A key caveat on interpreting monthly swings is that seasonal factors are large this time of year and small unadjusted changes can lead to hefty seasonally adjusted changes.  Permits were encouraging, nudging down a mere 0.1 percent, following a 5.6 percent advance in November.  The December rate of 0.679 million units annualized was up 7.8 percent on a year-ago basis.

Housing starts Consensus Forecast for January 12: 0.675 million-unit rate

Range: 0.640 million to 0.736 million-unit rate

Housing permits Consensus Forecast for January 12: 0.684 million-unit rate

Range: 0.660 million to 0.718 million-unit rate

Initial jobless claims in the February 4 week fell 15,000 to 358,000 with the 4-week average down a very sizable 11,000 to 366,250. The 4-week average was down for the 9th time in 10 weeks and, in a monthly comparison, was down roughly 15,000 from early January.
Continuing claims rose 64,000 in data for the January 28 week to 3.515 million but the 4-week average for this series was down 33,000 to 3.498 million.

Jobless Claims Consensus Forecast for 2/11/12: 365,000

Range: 355,000 to 370,000

The producer price index in December edged down 0.1 percent after rebounding 0.3 percent the prior month.  By major components, energy declined 0.8 percent, after nudging up 0.1 percent in November.  Within energy, gasoline fell 2.3 percent, following a 0.1 percent dip in November. Food cost inflation eased to a 0.8 percent decline after jumping 1.0 percent the month before. At the core level, the PPI firmed 0.3 percent after rising a modest 0.1 percent in November.  A big part of this acceleration was due to reduced discounting for motor vehicles by dealers.

PPI Consensus Forecast for January 12: +0.4 percent

Range: 0.0 to +0.8 percent

PPI ex food & energy Consensus Forecast for January 12: +0.2 percent

Range: +0.1 to +0.4 percent

The general business conditions index of the Philadelphia Fed's Business Outlook Survey in January edged five tenths higher to 7.3. The 7.3 level indicated moderate month-to-month growth in general business activity while the comparison against December's revised 6.8 indicates only the slightest monthly acceleration. However, growth in new orders decelerated as the new orders index eased to 6.9 from December's 10.7, indicating positive but slower growth.

Philadelphia Fed survey Consensus Forecast for February 12: 9.5

Range: 7.5 to 13.9

Friday

The consumer price index in December was unchanged for the second month in a row with lower energy costs playing a key role. Excluding food and energy, the CPI decelerated to a modest 0.1 percent increase after gaining 0.2 percent in November.  By major components, energy dipped 1.3 percent after declining 1.6 percent in November. Gasoline fell 2.0 percent, following a 2.4 percent decline in November. Food price inflation firmed to 0.2 percent after rising 0.1 percent the prior month. Within the core, upward pressure was seen in medical care, recreation, and rent.  Declines were seen in used cars & trucks, new vehicles, and apparel.

CPI Consensus Forecast for January 12: +0.3 percent

Range: +0.1 to +0.4 percent

CPI ex food & energy Consensus Forecast for January 12: +0.2 percent

Range: +0.1 to +0.3 percent

The Conference Board's index of leading indicators in December showed a respectable 0.4 percent gain versus sharply downward revised gains in the prior two months of plus 0.2 and plus 0.6 percent.  For the latest month, the biggest positive contributions came from the rate spread (between the 10-year T-note and fed funds) and initial jobless claims. Other readings were close to neutral but with consumer expectations a moderate negative. Other details included a 0.3 percent gain for the coincident index, up from a 0.1 percent gain in December but down from an outsized 0.8 percent gain in November.

Leading indicators Consensus Forecast for January 12: +0.5 percent

Range: +0.3 to +1.4 percent

R. Mark Rogers is the author of The Complete Idiot’s Guide to Economic Indicators, Penguin Books, 2009.

Econoday Senior Writer Mark Pender contributed to this article.