The falling cost of oil worked its way through the economy, according to reports this week on consumer and producer prices and retail sales. Meanwhile, most Federal Reserve districts reported modest to moderate growth for December.

As of Friday afternoon, the S&P 500 Index fell 1.7% to about 2,009. The yield on the 10-year U.S. Treasury note fell 17 basis points to 1.81%. Final figures will be posted here after the markets close.

Fed districts reported growth remained mainly "modest" to "moderate"

In its monthly Beige Book, the Federal Reserve reported that economic growth from mid-November through late December was modest to moderate for most of its 12 districts. The Kansas City District, reporting slight growth for the period, was the exception.

Most districts reported expectations of faster gains in the coming months. However, Dallas District contacts noted some concern that lower oil prices could affect that area's economy in the coming months.

Consumer prices tanked

The Consumer Price Index (CPI) in December dropped 0.4%, seasonally adjusted, over the previous month, the Labor Department reported. The 4.7% decline in the energy index was its largest since December 2008, while the gasoline index fell 9.4%. Food prices did increase, however, by 0.3%.

Stripping out the volatile food and energy sectors, the CPI stayed flat in December; for only the second time since 2010, this number didn't increase at least slightly. Price increases in shelter and medical care-the latter of which saw the highest jump since August 2013-were offset by decreases for categories including apparel, airline fares, used cars and trucks, household furnishings and operations, and new vehicles.

For all of 2014, the CPI rose 0.7% on an unadjusted basis and 1.6% excluding food and energy.

"Although headline inflation continues to decline from the large fall in oil prices, 'pass-through' to the core inflation has been minimal, as we saw this month with core inflation staying unchanged," said economic analyst Zoe Odenwalder. "However, the risk that core inflation will fall has increased, which could potentially cause a delay in Fed monetary policy action."

Gasoline prices helped cause sluggish retail sales

Retail sales declined 0.9% from November, according to the Department of Commerce's advanced monthly sales estimate for December. A 6.5% drop in gasoline station sales contributed to the drag. Other sectors that saw lower sales in December included building material/garden suppliers (down 1.9%), electronics and appliances (down 1.6%), and miscellaneous store retailers.

Year-over-year numbers were primarily positive, however. Overall, retail sales for 2014 were 3.2% higher than for 2013, with auto and motor vehicle dealers seeing the greatest increase (9.8%).

Producer prices pulled down by energy cost declines

The Producer Price Index (PPI) in December decreased by 0.3%, seasonally adjusted, over the previous month, the Labor Department reported. A 6.6% drop in the energy index was a key contributor to the decline. The rate was slightly above  consensus expectations of a 0.4% drop, but more than November's 0.2% decrease. For all of 2014, the PPI rose 1.1% on an unadjusted basis; in 2013, it rose 1.2%.

Industrial production declined

Industrial production was down 0.1% in December after a 1.3% rise in November, according to the Federal Reserve. Less need for heating, thanks to warmer-than-average temperatures, brought utilities production down and depressed the overall measure. Excluding utilities, production increased 0.7%. Total industrial production in December 2014 was up 4.9% over December 2013.

Business inventories rose to expectations

November's 0.2% increase in business inventories reported by the Commerce Department matched economists' consensus expectations. Wholesale inventories rose 0.78% over October, while retail inventories decreased 0.30%.

The economic week ahead

Economic reports scheduled for release next week include: new residential construction on Wednesday, with existing home sales data and The Conference Board Leading Indicators on Friday.

Summary of major economic reports
Date Report Actual
value 		Consensus
expected value 		10-year note yield S&P 500 Index
January 12 -6 bp -0.8%
January 13 -1 bp -0.3%
January 14 Retail Sales (December)
Source: Commerce Department		 -0.9% 0.0% -5 bp -0.6%
Business Inventories (November)
Source: Federal Reserve Board		 +0.2% +0.2%
Beige Book
Source: Federal Reserve Board		 - -
January 15 Initial Jobless Claims (week ended January 10)
Source: Labor Department		 316,000 291,000 -9 bp -0.9%
Producer Price Index (December)
Source: Labor Department		 -0.3% -0.4%
PPI, except food and energy (December)
Source: Labor Department		 +0.3% +0.1%
January 16 Consumer Price Index (December)
Source: Labor Department		 -0.4% -0.4%
CPI, except food and energy (December)
Source: Labor Department		 0.0% -0.1%
Industrial Production (December)
Source: Federal Reserve Board		 -0.1% 0.0%
Weekly change

bp=basis points. 100 basis points equal 1%. For example, if a bond's yield rises from 5.0% to 5.5%, the increase is 50 basis points.

Notes

  • The economic statistics presented in this report are subject to revision by the agencies that issue them. For more information on the reports mentioned in this article, read our Guide to major U.S. economic reports.
  • All investing is subject to risk, including the possible loss of the money you invest.
distributed by