WASHINGTON (AFX) - Economic data to be released in the coming week is expected to confirm a sharp slowing of the economy as the fourth quarter ends, and raise chances of a further rate cut by the Federal Open Market Committee at its meeting at the end of the month. Weak retail sales as well as indications of a slowing labour market are expected to deal a further blow to an already nervous market next week. "Weak retail sales will be a significant contributing factor to market psychology and could well lead the Fed to ease rates further," said Brian Fabbri, chief economist at Paribas Capital Markets. Stephen Gallagher, director of economic research at Societe Generale, added that he will be closely watching the development of market sentiment over the coming weeks. He is also expecting the Federal Open Market Committee to lower its key federal funds rate at their meeting on Jan 31. "What is important is market psychology. The market is very nervous, and has been overreacting to events and this can be very dangerous," he said, adding that "it remains to be seen how quickly the market can recover from confirmation of weak retail sales." December retail sales have been widely forecast to disappoint, after major department stores as well as internet retailers have hinted that this year's holiday shopping season failed to fulfill expectations. Coupled with lay-offs in the manufacturing sector, weak December retail sales are seen as sparking a rise in job losses. Robert McGee, chief economist at Tokai Bank, said he will be scrutinising weekly jobless claims data for any further deterioration in the labour market. Wholesales inventories could also receive more attention than usual, he said, arguing that "there is a correction going on. If there is some sort of build-up then production cuts still have some way to go." Overall, however, economists said they are still looking for a soft landing of the economy, although conditions could easily tilt for the worse. "We are looking for the economy to grow, but very slowly. We now have two quarters below 2 pct and it would not take much for a swing in particular items, such as inventories, to push the growth rate further down. Presently we have a soft landing but we are certainly flirting with recessionary conditions," said Carol Stone, deputy chief economist at Nomura Securities. Following are the consensus forecasts of Wall Street economists for indicators to be released in the coming week: NOV CONSUMER CREDIT, Monday (3:00 PM): Consumer credit is forecast to rise 9.7 bln usd in November. In October, consumer credit was up 16.7 bln usd, but, excluding one-time adjustments from reports of two institutions it was up 8.7 bln usd. Lehman Brothers Equity Research analysts said that "as consumers retrench and sales falter, we expect credit growth to slow." However, higher energy bills may force households to stretch out their payments over at least the near term. NOV WHOLESALE INVENTORIES, Wednesday (10:00 AM): Wholesale inventories are forecast to rise 0.5 pct in November. In October, inventories were up 0.3 pct. DEC IMPORT PRICES, Thursday (8:30 AM): December import prices are expected to have dropped 0.3 pct, after a 0.2 pct rise in November. A key factor in this is the dollar, which depreciated 0.8 pct on a trade weighted basis, they argued. According to Lehman Brothers' analysts, core, non-petroleum import prices are likely to rise 0.1 pct in December, their first rise since August. WEEKLY JOBLESS CLAIMS, Thursday (8:30 AM): In the week ended Jan 6, weekly jobless claims are forecast to rise 14,000 to 389,000 after rising 16,000 to 375,000 in the week to December 30. Economists said that recent announcements of lay-offs by GM Corp and planned store closures by Sears, the department store chain, indicate that the labour market is likely to deteriorate further in January. DEC RETAIL SALES, Friday (8:30 AM): December retail sales are forecast to have dropped by 0.4 pct, with retail sales excluding auto sales up 0.1 pct. In November, retail sales posted the first significant decline since April and were down 0.4 pct. Excluding auto sales, they were up 0.2 pct. A further decline in motor vehicle purchases are expected to have led sales downward. A poor outcome for the non-auto component is suggested by weak chain-store sales reports and a decline in gasoline pump prices. "Retail sales will paint a good picture of how fast the economy is slowing, and with 40 pct of December sales attributed to Holiday shopping -- and that was weak this year -- retail sales may prompt the Fed to act at its Jan 31 meeting and lower rates," said Wells Fargo chief economist Sung Won Sohn. DEC PPI, Friday (8:30 AM): Economists expect inflation at the wholesale level to remain moderate. They forecast a 0.1 rise in both overall PPI and the core PPI. In November, PPI was up 0.1 pct, while the core rate was unchanged. Coupled with surging electric costs and dismal weather, wholesale home heating expense is expected to more than offset declining gasoline and fuel oil prices. As for the core PPI, economists do not expect any surprises in either tobacco or car prices, which in the past months have caused the core PPI to swing wildly. In a note, Lehman Brothers economists said wholesale cigarette prices were probably flat in December, while new car prices probably tumbled another 0.5 pct as dealers attempt to clear out unwanted inventories.