The second half of this week will feature some key data from the US which could help to drive the theme that the US recovery is gaining momentum. As a result it should help to support the US Dollar. The data is likely to show strong results from US retailers and manufacturing, as well as a bounce back in housing starts. Therefore following this week we should have a better picture of how the US economy ended the 1st quarter.

With Euro-zone members agreeing to a framework of standby loans for Greece the impetus the market has placed on that news story may fade somewhat and we may see currency markets return back to fundamentals and what will happen with interest rate differentials.

The data this week could help to reinforce expectations that the US recovery is outpacing those of the other major economies – Japan, the Euro-zone and the UK – and that could mean interest rate outlook expectations could begin to swing the Dollar’s way. Strong readings from the data this week can put the focus back on that over-arching theme.

US Releases this Week

Retail Sales

The retail sales report, out Wednesday, is expected to show another gain in shopping. Total retail sales are expected to jump 1.2% in March, on top of a 0.3% increase in February.

If we look at this chart, spending has been rather muted to start the 1st quarter, with small increases in January and February. In March expectations are for a much bigger number.

Several factors point to a strong number for March. First, the number of new cars sold surged 13.5 percent for the month. We had some harsh weather in February that likely held back spending and the improved weather in March meant more shoppers returning to stores. Also, Easter was a little early this year and bumped most of Easter sales into March. Finally, we had reports on chain store sales for March that were good. Higher consumer spending boosts the prospect that the US recovery is gaining momentum.

Consumer Confidence

On Friday we will get a measure of consumer confidence. The median forecast is that the preliminary April sentiment index rose to 75.0, from a final March reading of 73.6.

Here’s a look at consumer confidence and we see that following a rally in sentiment from our lows in early ’09 we have plateaued at the low 70 level the past four months. Our positive March non-farm payroll report was a further sign that the labor market is recovering and with the chance of continued gains in employment that should boost confidence in Friday’s mid-April report. Higher consumer confidence should translate to higher spending, another plus for the recovery.

Industrial Production

Those are our consumer readings, how about the manufacturing sector? Industrial production, out Thursday, is expected to have increased a solid 0.8%. That would follow a 0.1% increase in February.

The gray bars in this chart are our monthly changes, and we see that for past 8 months the US has posted positive output. However production slowed down in February with a weak 0.1% increase and a strong reading for March will give confidence that the manufacturing recovery, which has spearheaded the overall recovery, is continuing to post strong activity.

We are also going to have two regional manufacturing reports coming out the same Thursday – the Empire manufacturing index and the Philly Fed manufacturing index. Both are expected to show pick up in activity. The Empire index is expected to climb to 23.7 for April from March’s 22.8 while the Philly Fed index is forecast to climb to 19.5 for April from 18.9 in March. As these are leading indicators for manufacturing, an increase to activity levels will bolster the manufacturing sector.

Consumer Price Index

The consumer price index, out Wednesday, is forecast to have edged up just 0.1% in March. Excluding food and energy, the core index is projected to have also increased 0.1%.

We can see that we have had very flat CPI readings the past several months and there is really no pressure here.

In a look at annual changes, even though we have climbed above 2% in the headline rate, if we look at core CPI, we see continued downward pressure on prices. The February annual core CPI registered a reading of 1.3% and forecasts are for a drop to 1.2% in March. This will actually keep pressure on the Fed to keep low rates longer as the Fed is looking at both job growth and inflation as the two main components to improve before it begins tightening rates.

Housing Starts

Finally, on Friday we will have a look at housing starts.

Housing starts are projected to come in at a 610,000 annual rate, up 6.1% from February when weather may have curtailed activity. We have been bouncing along the bottom in terms of construction of new homes.

And if we look at new home sales we know why.

New home sales have been sliding. Right now there shouldn’t be much optimism of a big pickup in new home sales. We do have the expiration of a home-buyer tax credit on April 30th looming, but activity may pick up in existing home sales more so than in new home sales, and with extra supply and foreclosed homes coming onto market, new starts may lag.

Still, a pick up in housing starts, which is forecast, will be a good indicator for home builders and could mean employment gains in the sector. We finally saw construction adding jobs in March’s non-farm payroll report.

Fed Speak

In addition to economic reports, several Fed officials–from Richmond Fed president Jeffrey Lacker Tuesday night to Fed governor Kevin Warsh on Friday morning–are scheduled to speak. Bernanke is also set to testify on Wednesday so we will have plenty of Fed-speak this week for the markets to digest.On Wednesday we will also get the Fed’s Beige Book, which is a compilation of regional economic activity.