The economy shifts into "prepare-for-the-next-meeting-of-the-Federal-Open-Market-Committee" mode with the release next Wednesday of the Beige Book in what will otherwise be a week heavily weighted with housing data.

It follows, of course, a week in which housing forced its way into economic consciousness, dominated by questions over the solvency of mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE). Even though the Freddie-Fannie concerns may have been overblown, they fueled both financial and economic concerns. From a financial standpoint, the questions could disrupt the orderly flow of mortgage money even as the two government sponsored entities are key elements in the foreclosure rescue plans. From an academic economics view, Fannie and Freddie represent a nightmare for economists on both ends of the spectrum: government takes all the risk (arguably for a good public purpose of increased homeownership) while the private sector reaps the rewards (encouraging further investment). The proposed explicit support of the two agencies would have the Treasury government act as both a lender and investor -- not a prudent position.

Those concerns virtually dwarfed two incendiary inflation reports. After Tuesday’s report on producer prices showed wholesale inflation running at its fastest pace (9.1%) since June 1981 (10.5%), Wednesday’s data on consumer prices posted a 4.9% inflation rate, steepest since May 1991 (5.0%). It was no surprise then that Federal Reserve Chairman Ben S. Bernanke emphasized inflation concerns in delivering his semi-annual report on monetary policy to Congress.

The only real surprise of the week though was Thursday’s report on June housing permits and starts with an unexpected jump in both despite ongoing housing sector struggles. The higher levels of permits and starts though came with an asterisk: new building codes took effect in New York City on July 1 and builders rushed to apply for permits in June before the new rules kicked in. Indeed, the spurt in permits and starts came in the multi-family sector (buildings with five or more housing units) underscoring the pressures on the single-family market as families shift from owners to renters.

The economy’s overall strain was clearly evident in Tuesday’s report on retail sales which were off sharply from expectations, even with a boost from sales at gasoline stations. Soaring gasoline sales contributed 76% of the increase in non-auto retail sales, leaving consumers with little to spend elsewhere. Retail sales ex-auto and ex-gasoline increased by just $627 million (0.2%) in June, the weakest growth since January and down sharply from the $2.2 billion gain in May. The report was a harsh reminder of the transitory impact of the tax rebate stimulus checks. Those payments were accelerated to early May and quickly used – to fill gas tanks, providing less of a general economic boost than hoped (except to the extent that it freed cash that might have gone for gasoline for “luxuries” such as food and clothing).

Looking ahead to data at the end of the week, leading indicators suggest home sales will continue to slip. Existing home sales for June will reflect economic conditions in April, which is when consumer confidence slipped, home purchase plans fell and mortgage interest rates increased -- not a combination pointing to improved sales absent reductions in prices. The median price of an existing home though has increased for three straight months. Although it remains below year ago levels, it is up 6.5% since February, just as the home buying season heats up. June new home sales – reported based contracts – are a function of the same factors: dropping consumer confidence, falling home buying plans and a decline in mortgage application activity (although rates for adjustable rate loans dipped slightly). Builders continue to be overwhelmed by inventory. Though completions of new single-family homes ticked down in June, in May builders completed 1.8 homes for every new house sold that month.

Mark Lieberman is the senior economist for the Fox Business Network. Prior to joining FOX, he served as first vice president at Washington Mutual, where he was manager of economic analysis and research. Before that, he served as senior vice president at Dime Savings Bank of New York (which was later acquired by Washington Mutual), where he specialized in credit and risk management. He has a degree in Economics from the Wharton School of the University of Pennsylvania.