Inflation and consumer spending will take center stage in the upcoming week with a sneak peek at housing and another false positive on the labor market.

In the opposite order:

The report in the week just ended on new claims for unemployment insurance was at first blush positive, showing initial claims dropped below 600,000 (to 565,000, the lowest level since January) but a glimpse behind the curtain revealed some anomalies to the numbers -- at least one of which will be repeated in the next report.

Each year, in an effort to reduce the impact of seasonal volatility in the closely watched unemployment claims data, the Department of Labor applies adjustment factors. In the case of the data for the first two weeks of July, the Department knew that historically the auto industry puts assembly workers on furlough as factories are modified for the new model year. To ignore the resulting spike in unemployment claims would distort the labor picture. Seasonal adjustment factors reduce the impact of known, one-shot events (much the way labor data are adjusted to accommodate the end of the school year).

Of course, 2009 has not been a normal year for the auto industry and assembly workers were idled early in June, well ahead of the annual re-tooling. Nonetheless, the Department of Labor used the previously established seasonal adjustment factors (to do otherwise would have skewed data for the year) which had the effect of reducing the seasonally adjusted number of claims last week -- and will again next week, to an even greater extent.

All that said, initial claims for unemployment insurance above 500,000 –--while better than 600,000-plus -- is not a positive sign and will continue the inexorable march to a double-digit unemployment rate before year-end and perhaps before summer’s end.

As much as we’d like to believe the economy -- and the labor picture -- is getting better, the data show otherwise. Another report in the week just ended showed hires through May are down 14% from the first five months of 2008 putting the economy on pace to hire about 50 million workers, down almost seven million from a year ago.

Thursday’s report on unemployment insurance claims will be followed later in the day with results of the National Association of Home Builders’ Housing Market Index, a meld of responses to three questions on buyer traffic, immediate home-buying plans and plans to buy six months in the future. While the overall index is usually the focus, the components provide more detail and suggest a glimmer for new home sales. The trajectory of sales and both the current sales index and buyer traffic index had been fairly similar until mid-2006 when they began to diverge; the NAHB data show more interest in new home buying than sales transactions reflect. Buyer interest is increasing but is stymied by continuing labor uncertainty and mortgage interest rate volatility.

One day earlier, the Bureau of Labor Statistics will report on the Consumer Price Index, a report much like the Commerce Department report the day before on retail sales will be influenced by gasoline prices. Indeed the increase in gasoline prices -- and consumption -- could offset in part the weak June retail store sales to produce a slight gain in total sales. Gasoline prices rose almost 16% and consumption just over 1% from mid-May to mid-June. Gasoline station sales are about 10% of total retail sales. As much as improved retail spending -- about 40% of consumer activity -- will contribute to a revival of the economy, understanding what goes into a spending increase could temper enthusiasm against another false positive.

Those same gasoline prices could push up the consumer price index for the month, but against still higher prices and index a year ago still produce a drop in the inflation rate (the year-over-year change in the consumer price index). The negative inflation rate in July would be the fourth straight month the index has gone down year over year. 

One caution though came from Friday’s report showing the steepest month-month increase in important prices since November 2007. Imports represent about 15% of domestic purchases and thus an increase in import prices could push up prices overall. Import prices excluding energy rose for the second straight month, which will contribute to an increase in the “core” consumer price index which excludes food and energy.

Mark Lieberman is the senior economist for the FOX Business Network. Prior to joining FOX, he served as first vice president and manager of economic analysis and research at Washington Mutual in New York. 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 is a member of the Executive Committee of the New York Association for Business Economics. He has a degree in Economics from the Wharton School of the University of Pennsylvania.