It was not a good week for the economic report card last week.  We started the week with NFIB Small Business Optimism, which reported the lowest reading in three months (89.0 act. vs 91.2 est.), and it continued downhill all week.  Retail Sales was next (-0.5% act. vs -0.1% est.), showing the consumer is pulling back, followed by the FOMC minutes from the June 23rd meeting, where the fed thought the economic outlook had “softened somewhat” and it “expected the pace of hiring to remain low for some time.”  In the manufacturing sector, both the Empire Manufacturing (5.08 act. vs 18.00 est.) and Philadelphia Fed (5.1 act. vs 10.0 est.) came in substantially lower than expected, but were still above 0.0, which indicates expansion. On the inflation front, where the fed minutes had mentioned “some risk of deflation,” the PPI (-0.5% act. vs -0.1% est.) and CPI (-0.1% act. and est.) were both negative.  We finished the week with the University of Michigan Confidence number (66.5 act. vs 74.0 est.), which hasn’t been this low since August 2009.  In the U of Michigan survey, a record low share of Americans expected their incomes to rise in the next 12 months, and this pessimism could restrain consumer spending going forward. FYI-The 2 year treasury had its lowest close ever, at 0.585%, on Friday.

This week there isn’t much on the economic calendar, with a couple housing numbers, but Bernanke’s semiannual testimony, the old Humphrey-Hawkins, to the Senate Banking Committee on Wednesday and the House Financial Services Committee on Thursday will be the highlight. After last week’s FOMC minutes, anything the markets can get about the fed’s current thoughts and outlook on the economy and inflation/deflation will be highly scrutinized. This also is a big week for corporate earnings, which so far have been mostly positive, but the markets aren’t getting many encouraging words from CEOs about the future.

There was very little in economic news last week, but what we did get was marginally positive. We started with ISM Non-Manufacturing, which was lower than expected (53.8 act. vs 55.00 est.), but still remained above 50, showing that 90% of the economy is still experiencing growth. Then we had jobless claims lower than expected (454k act. vs 460k est.), which markets took positively, as it could be setting a trend. There is a long way to go, however, to get the jobs market back on track. Finally retail chain stores sales improved 3% over last year. Put all this together and the stock market found momentum to get back above the 10,000 mark.

This week we have supply to get through again, as the treasury auctions $69B in notes and bonds. On Tuesday we get the National Federation of Independent Businesses Optimism report, which is still having trouble getting any real momentum; this one is very important to the overall recovery, as independent businesses have created 64% of all new jobs in the past 15 years. Wednesday we get Retail Sales, which isn’t expected to be positive. We will also get the minutes from the June 23rd FOMC meeting for any indication on the fed’s game plan going forward, as things seemed to have stalled here. Finally we get inflation numbers PPI and CPI, which should give the fed plenty of leeway to leave rates low for an extended period.