The New York Fed index for the month indicated a record contraction of activity, though traders were expecting a poor showing. The other release of the day did surprise observers. Industrial production rose last month rose much more than expected, though September's decline turned out to be worse than originally reported. In any case, manufacturing is not expected to pick up steam and overall industrial output is likely to decline in the months ahead.

Oil futures fell again today on expectations that demand will continue to contract. A barrel of light, sweet crude oil for next month delivery fell by $2.09 on the New York Mercantile Exchange to settle at $54.95. This was the lowest close for a front-month contract since January 29, 2007.

By the end of stock trading, the Dow had lost 2.63% for the day, the S&P 500 lost 2.58%, and the Nasdaq lost 2.29%. The Nasdaq's close was the lowest and the other two were the second lowest in over five-and-a-half years.

In the bond market, the yield of the benchmark 10-Year Note closed at its lowest level since October 22 and at its second lowest level since October 8.

The only major economic release tomorrow is the Producer Price Index (PPI), a key inflation gauge. It is expected to show tame inflation pressure at the wholesale level. With oil prices plummeting last month, the index is expected to have declined by between 1.5% and 2.0%. The core PPI (excluding the volatile categories of energy and food) is expected to have risen by just 0.1% or 0.2%.

The index declined by 0.4% in September and by 0.9% in August. The core index rose by 0.4% in September following a 0.2% rise in August.

10:30 AM EST : Today's economic news was mixed but, on balance, it was stronger than expected. Nevertheless, it has not changed the perception that the economy is struggling. The gloomy mood, augmented by word that Citicorp plans to cut some 53,000 jobs is weighing against stocks. The safety of government-backed Treasuries is, therefore, more attractive and bonds are up this morning.

The first economic release of the day was bearish but not unexpected. The New York branch of the Federal Reserve reported today that its index for the month on the region's manufacturing sector came in at -25.43, down from October's -24.62.

Any reading below 0.0 indicates a general contraction of activity relative to the preceding month. The readings have indicated contractions in eight of the last ten months and this month's index was the lowest in the history of the data series begun in July of 2001.

The New York region is relatively small but its manufacturing index is the first released for the month. The other regions posted large contraction indicators last month and the national manufacturing index for October was the lowest since 1982.

The second economic release of the day was stronger than expected. The Federal Reserve reported that its index of industrial production -- a gauge of output from the nation's factories, mines, and utilities -- rose last month by 1.3%. This easily topped analyst estimates of a flat reading or a slight decline. But September's originally reported decline of 2.8% was revised to a deeper drop of 3.7%.

But the plunge in September was magnified by hurricanes in the Southeast and by a machinists' strike at Boeing. Today's report indicated that manufacturing output increased by 0.6% last month following a 3.7% dive in September and mining output, which includes oil drilling, surged by 6.1% following an 8.5% drop. The volatile utilities sector saw an increase of 0.4% in October following a 2.4% rise in September.

Capacity utilization, the ratio of output to potential output, came in at 76.4% last month, up from a downwardly revised 75.5% in September (originally reported as 76.4%). Though the latest reading was an increase, it was still below the average reading of 79.4% for the nine months of the year preceding October. Higher readings are considered signs of rising inflation pressure since production bottlenecks can prevent demand from being met and, therefore, driving up prices.

The utilization figure for the manufacturing sector was 73.8% up slightly from 73.5% in September. The reading was 89.0% in the mining sector. Though up sharply from September's 84.0%, the readings were over 90.0 in the eight months of the year before that. The ratio was 83.5% in the utilities sector last month, up from 83.3%.

Though the headline industrial production figure was surprisingly strong, expectations of further declines are blunting the positive effect for stock traders. With the domestic auto industry struggling and demand for oil on the wane, upcoming reports are expected to show little if any progress. Moreover, besides October's atypical increase, the largest so far this year was a 0.2% increase last January and in the ten months of the year so far, the industrial production reading has fallen in six.

This week's economic calendar includes a couple of key inflation indicators, several reports on the manufacturing sector, and a major report on the housing sector. In addition, the Federal Reserve will release more details of the monetary policy committee's deliberations in October.

Tomorrow brings one of the inflation indicators, the Producer Price Index. This gauge of price changes at the wholesale level declined in September by 0.4% following a 0.9% decline in August. But the headline reading was somewhat deceptive. A major component is energy and its index fell by 2.9% in September after a 4.6% drop in August. Food is another volatile category but it rose in September by an in-trend 0.2%. Excluding both the energy and food categories, the so-called core index rose by 0.4%, a larger than expected increase. On a year-over-year basis, the core index was up by 4.0%, the largest margin since February of 1991.

Because of a large drop in oil prices last month, the overall PPI is expected to have declined by 1.5%. If this is the case, it would be the largest decline in seven years. The core index is expected to have risen by 0.2%.

Wednesday brings an even more influential inflation indicator. This is the Consumer Price Index, a gauge of price changes at the retail level. It was unchanged (0.0%) in September following a 0.1% decline in August. The energy index fell by 1.9% following a 3.1% contraction and the food index rose by 0.6%, matching the increase in August. The core index edged up by 0.1%, the smallest increase in five months.

Once again, a sharp decline in the energy component is expected to help pull the overall index down. The consensus estimate is for a decline of 0.8%. If the prediction is accurate, it would be the biggest drop since 1949. The core index is expected to have risen by 0.2%.

The report on housing starts also comes out on Wednesday. In the report for September, the Commerce Department said the seasonally adjusted, annualized pace fell by 6.3% to 817,000. This was a much larger decline than the 880,000 pace forecasters had predicted. Moreover, August's originally reported starts rate of 895,000 was revised down to 872,000 and July's previously reported 954,000 was revised to 949,000. September's reading was the lowest since January of 1991.

It should be noted, however, that the data has been skewed in recent months by a change in building codes in New York that caused a 169.9% spike in starts in the Northeast in May and June. Since then the pace in the region has fallen by 53.4% including a 20.9% drop in September.

Another sign of weakness was an 8.3% drop in the rate (adjusted, annualized) of building permit issuance to 786,000. This was subsequently revised to a decline of 6.1% to a pace of 805,000. The rate was still the lowest since January of 1991.

For October, the pace of housing starts is expected to have fallen by 4.5% to 780,000. This would be the lowest rate in the available data going back to January of 1959. The rate of permit issuance is expected to have declined by 4.3% to 770,000, the lowest level since November of 1981.

On Wednesday afternoon, the Fed will release the minutes from its October meetings. There was an unscheduled meeting on the 8th in which the Federal Open Market Committee (FOMC) agreed to cut its target for the overnight borrowing rate between banks (federal funds rate) by 0.50% and the discount rate (rate for loans directly from the fed) by 0.50%. There was also a regular meeting on the 28th and 29th that resulted in additional 0.50% cuts to the fed funds and discount rates.

Most fed watchers expect the minutes to contain few surprises. The nature of the emergency meeting speaks for itself and the additional rate cuts were unanimously approved. Given the string of bearish economic data that has been released since the last meeting, most observers are expecting another round of rate cuts at the next meeting on December 16.

The employment situation gets reviewed once again on Thursday with the weekly report on jobless claims. In last Thursday's report, the Labor Department said that the seasonally adjusted level of initial claims for state unemployment benefits rose the week before by 32,000 to 516,000. The jump was larger than forecasters were predicting and the level was the highest since the last week of September in 2001 when it was 517,000. The four-week moving average, which smoothes out some short-term volatility, rose by 13,250 to 491,000.

Readings over 400,000 are seen as indications that layoffs are outpacing hiring. The trend in claims this year has been up. For the forty-five weeks of the year to date, the average initial claims reading has been 400,548. For the same period last year, the average was 318,111.

The last report said that the level of continuing claims rose by 65,000 to 3.897 million in the week ending November 1 (continuing claims must be at least a week old). This was the highest level in twenty-five years. The four-week average rose by 43,000 to 3,794,250. For the first forty-four weeks of the year, the average continuing claims reading has been 3,167,500. For the same period last year, the average was 2,532,159.

The initial claims reading for last week may be discounted somewhat because of the Veterans Day holiday. Whatever the figures show, the outlook for the labor market it still bleak as more and more companies announce layoff plans.

Later on Thursday morning, the independent research firm, the Conference Board, will release its Index of Leading Economic Indicators for last month. In September, the index rose by 0.3%, the first increase in five months. But August's originally reported decline of 0.5% was revised to a steeper drop of 0.9%.

Since much of October's economic news was negative, the leading indicators index is expected to have declined once more. The recent analyst estimate is that it fell by 0.6%.

The final release of the week is the index of manufacturing in the Philadelphia Fed district for the month. In October the index came in at -37.5, the lowest reading in eighteen years. As is the case in the New York index, any reading below 0.0 indicates a contraction of activity. Another large contraction indicator is anticipated for November but predictions are for a slightly better reading of -30.0 . . . .

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