December retail sales rose slightly less than expected, posting a gain of 0.6% versus the 0.8% increase economists had anticipated. Stripping out auto sales, retail sales were up 0.5%. The December sales gain capped six consecutive months of sales improvement. For the entire year sales were up 6.7% in 2010, the largest yearly gain since an 8.2% jump in 1999. Even though retailers' cash registers were ringing more loudly than they have in some time last year -- the underlying inflation pressure at the consumer level remained tame.



The Labor Department reported this morning that the consumer price index edged 0.5% higher last month, led by higher energy costs. The core rate of inflation at the consumer level, which excludes the more volatile food and energy prices, increased a very modest 0.1%.



A separate report this morning showed a surprisingly large gain of 0.8% for industrial production last month - but capacity utilization remained well below levels where production bottlenecks might be expected to create delivery delays -- which in-turn could ignite a round of inflation producing price increases as supply falls below demand.



The collective story found in this morning's battery of reports points to an economy that is expanding - but well below a pace that might be expected to create inflation pressures - and that's a story that could not be much better for the near-term prospects for steady to perhaps fractionally lower mortgage interest rates.



Looking ahead to the coming holiday shortened week - nothing in the way of market moving data appears on the calendar. Wednesday the Commerce Department will release the December housing starts and building permits numbers and Thursday will feature the weekly initial claims data for the week ended January 15th, December leading indicators and the existing home sale figures.



I expect the trend trajectory of mortgage interest rates next week will be far more influenced by trading action in the stock markets than by any of the scheduled economic releases. If my assessment is correct, falling stock prices will tend to support steady to perhaps fractionally lower mortgage interest rates while rising stock prices will likely drag mortgage interest rates higher as well.