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By Carlos Guillen

Perhaps a bit encouraging today was that increases in the cost of living appeared to be under control this past month. According to the U.S Department of Labor, the Consumer Price Index (CPI-U) was flat month-over-month in December, landing in line with the Street's estimate. Concurrently, excluding the food and energy contributions to inflation, which normally add volatility to the data, core CPI increased 0.1 percent, matching economists' average forecast. The fact that total inflation is still rather muted most recently is certainly encouraging for consumers as they are continuing to support economic growth. It should be noted that gasoline prices have been decreasing for the past three months, most recently dropping 2.3 percent, after decreasing 7.4 percent in the prior month, which should also be encouraging for consumer shopping.

It is also encouraging to see that core inflation is running at a 12-month trailing average that is well below 2.5 percent, the Fed will still continue to feel free to execute its quantitative easing plan to fuel the overall economy. Over the last 12 months, total CPI has increased 1.7 percent, decreasing from the 3.0 percent posted for comparable year ago period. At the same time, core CPI has increased 1.9 percent, decreasing from the 2.2 percent posted for the comparable year ago period. Given that the Fed is expected to continue its quantitative easing efforts for as long as inflation is below 2.5 percent, until the unemployment rate falls to 6.5 percent, the result certainly continues to clear the way for the Fed to implement monetary policy; however, reluctance to ease money will likely intensify as the effect of further stimulus is likely to be limited.

In another bit of positive economic data today, the Federal Reserve showed that industrial production during December increased month-over-month by 0.3 percent, landing higher than the Street's consensus estimate calling for a 0.2 percent month-over-month rise and representing a second consecutive monthly increase. Capacity utilization, which measures the extent to which plants are achieving their full potential output, increased from 78.7 percent to 78.8 percent, landing higher than the Street's consensus estimate of 78.5 percent. Although the improvements are small, they are clearly supporting the general sentiment that the sector, which carried the economy's recovery from the most recent recession, was not deteriorating.

Despite the rather favorable economic results, equity markets are having a tough time continuing the five days of gains achieved, and at the moment, the Dow Jones Industrial Average is in the red by over 30 points, and with the debt ceiling debate still in the background, stocks are likely to continue to experience pressure.

Homebuilders Shrug off Fiscal Fears
By David Urani

It sure seems like all the hoopla over the Fiscal Cliff in December and the ensuing increase in payroll taxes and income tax rates on the rich in January created a fair amount of turbulence in the economy over the past couple of months. However, that cautiousness didn't seem to knock homebuilder confidence as tracked by the NAHB/Wells Fargo Housing Market Index. Overall confidence remained flat at a reading of 47 for January, which as a reminder is the highest level since April 2006.

Or if you look at it from a different angle, even if some potential homebuyers have been put off by new tax policies and/or threat of Fiscal calamity the fundamentals of the housing market have remained strong enough to keep housing on the recovery track. Among those fundamental factors are supply shortages in some regions, and as Lennar Corp. (NYSE:LEN) noted earlier this week, mortgage availability remains tight and as that slowly loosens up it frees more pent up housing demand.