Economy Watch: Santa Delivers Good News Early

For investors, Christmas came early this year.

After weeks of confusing--and contradictory--economic data, Friday's reports showed the best of all possible worlds: tame inflation and moderate economic growth.

"All we wanted from this holiday season was a little more growth and a little less inflation, and Santa looks like he has delivered," Mark Vitner, an economist at Wachovia Securities in Charlotte, N.C., told Reuters.

The Labor Department said U.S. consumer prices were unchanged in November, as higher energy and car prices offset increases in costs for homeownership and medical care. Notably, the core prices, which exclude the volatile food and energy prices, were also unchanged for November. This was the lowest core inflation seen since June 2005.

"Pretty Shocking"

“The CPI was pretty shocking,” said Stephen Stanley, an economist at RBS Greenwich. “We’ve been generally thinking inflation was going to be more of a problem.”

Overall, the CPI is up just 2% this year, and the core CPI is up 2.6%. The core CPI, which peaked at 2.9% year-over-year in September, remains above the Fed Reserve’s comfort zone, but it is moving in the right direction.

Meanwhile, industrial production rose 0.2% in November on gains in manufacturing, but that was after a revision showing output had been weaker in October than originally reported. Industrial capacity use was unchanged last month, the Federal Reserve said.

Analysts saw the industrial production data as alleviating worries about the outlook for growth.

"There was no evidence of a broadening out of weakness beyond the construction sector," Pierre Ellis, a senior economist at Decision Economics in New York, told Reuters. "Concerns about worse problems with the economy than already perceived will dissipate."

More Data Coming

For those skeptical that about a "soft landing" or "Goldilocks Economy," next week will offer new data.

On Tuesday, there will be the release of the November producer price index, which includes the Fed’s favorite measure of inflation, the core PCE deflator. RBS Greenwhich's Stanley is looking for an increase of 0.1% in the core PCE deflator.

Also on Tuesday will be November housing starts. On Thursday is the final revision of third-quarter GPD and a final report on third-quarter corporate profits.

Then on Friday will be November durable goods orders.