Friday capped off a modestly downbeat week for Wall Street as investors welcome in earnings season and several mixed economic reports.

The Dow dropped 8.54 points, or 0.1%, to close at 10,609.65, the S&P slipped 8.86 points, or 0.8%, ending at 1,136.02, and the NASDAQ gave back 29.18 points, or 1.3%, to close at 2,287.99.

In the wake of December’s poor employment report, the Labor Department reported that the number of newly laid-off workers seeking unemployment benefits advanced by 11K claims for the week ending January 9. That was nearly 4 times that of the 3K gain economists had anticipated. Although jobs remain scarce amid a sluggish economic recovery, the number of people continuing to claim benefits dropped sharply to 4.6M from 4.8M the previous week.

Since late last October, initial claims have fallen 17%, or by 90K filings. Just two weeks ago, claims slipped to their lowest level since July 2008.

The Labor Department also reported last week that the Consumer Price Index advanced by a reserved 0.1% in December, while core inflation increased by a similar 0.1%. For 2009, consumer prices increased 2.7%, following a 0.1% advance in 2008, representing the smallest gain in more than 50 years. Core inflation advanced 1.8% for the year, matching 2008’s rate and came in at the smallest increase since a 1.1% gain in 2003.

December saw the federal budget reach an all-time high for the month, as the deficit topped out at $91.85B. Through the first three months of fiscal 2010, the deficit stands at $388.51B, nearly 17% higher than the $332.5B imbalance reported this time last year.

Last year’s imbalance soared to $1.42 trillion, more than three times the record of the previous year, an imbalance of $454.8B set in 2008. This year’s deficit is expected to be even higher, to come in around $1.5 trillion. That would equate to an increase of 5.6% above the 2009 deficit.

On the retail front, despite an upswing in spending leading up to the holiday season, sales in December posted a 0.3% decline. The lack of demand helped push yearly sales to its largest decrease on record. The 0.3% drop was a far cry from the 0.5% increase economists had expected, marking the first decline since a 2% decrease in September.

For the year, retail sales plunged 6.2%, only the second time on record that sales had decreased on a yearly basis. The other annual decline was a 0.5% drop in 2008.

In housing news, a record 2.8M households receive some sort of foreclosure notice in 2009, up 21% from the previous year. Banks repossessed more than 92K homes in December, while nearly 350K households received a foreclosure notice. The repossessions represented a 14% spike over November’s rate, and the foreclosures signified a 15% jump from December 2008.

A positive sign within the economy came from an unexpected jump in business inventories in November. Stockpiles increased by 0.4%, matching October’s increase. Manufacturers increased their supplies by 0.2%, while retail auto-part suppliers pushed their inventories up by 0.1%. Inventories at furniture, appliance and electronics stores slipped 1.4%. Economists were projecting inventories to advance at a more modest 0.2% rate.

Another hopeful sign was industrial production increasing by 0.6% in December, marking the sixth consecutive months of gains, in-line with economists’ projections. With the nation battling bitter temperatures, electric and gas utilities pushed production higher by 5.9% during the month. Mines increased output by 0.2%, while manufacturers produced 0.1% less during the month as construction and consumer durable goods posted declines of 2% and 0.9%, respectively.

The week ahead is relatively light on data as earnings season picks up. Building Permits, PPI, Housing Starts, and Leading Indicators reports for December are due out, along with the Philadelphia Fed reading for January, Net Long-Term TIC Flow report for November, and the usual weekly results for Initial Claims and Crude Inventories.