This week: Retail sales, inflation, factory output

Lately, the economy has been marked by a good news-bad news narrative, with consumer spending accelerating and factory output and business investment floundering amid overseas weakness. That dichotomy should be on display again this week with reports on retail sales and industrial production. Meanwhile, data on inflation and labor market turnover could be key to helping the Federal Reserve decide whether to raise interest rates this year for the first time in nearly a decade.

On Wednesday, the Commerce Department releases its report on retail sales for September. Consumer purchases have risen in recent months as a result of solid job growth, hefty savings from low gasoline prices, and reduced household debt. A broad measure of sales was likely tempered last month by the drop in pump prices, says Lewis Alexander, chief U.S. economist of Nomura. But a core reading that excludes gas, autos and other volatile categories is expected to have risen another healthy 0.4%.

Strong consumer demand has helped push up prices for apparel and other goods. That, along with rising apartment demand and rents, is partly offsetting the deflationary effects of a strong dollar and low oil prices, which have kept a lid on car import prices and helped cut airline fares. Cheap gas likely pushed down the consumer price index in September. But economists estimate the Labor Department will report Thursday that "core " prices, which exclude food and energy, ticked up, keeping annual price gains at 1.8% and bolstering hopes among Fed officials that inflation will drift back to their 2% target. That could make a rate hike this year more likely.

The rallying dollar has been an albatross for manufacturers, making exports more expensive for overseas customers. Producers also have been hurt by low oil prices, which have discouraged drilling activity and steel production. Strong consumer demand for new cars and trucks has helped cushion the blow, but UBS says that likely won't be enough to prevent the Fed on Friday from reporting a second straight drop in industrial production in September.

The labor market has been among the economy's bright spots, adding more than 200,000 jobs a month this year. Payroll growth slowed markedly in August and September. Yet the Labor Department's Job Openings and Labor Turnover survey showed vacancies hit a record 5.8 million in July. If its report next week reveals that trend continued in August, it could bolster some economists' views that slowing job gains may be due to employers' difficulty finding skilled workers rather than subdued demand. The report also could show whether the number of people leaving one job for another — a sign of a vital labor market — is picking up. That would give the Fed more confidence that wage gains, and inflation, will accelerate.