The Wait Is Over for Dreaded PPI, Retail Sales

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Only one more day till the weekend.

Unfortunately, it's seeded with the dreaded

Producer Price Index

and

retail sales

reports, neither of which is expected to do the bond market any good.

Fueled by rising gasoline prices, PPI, which measures how much manufacturers pay to make the goods we buy, is expected to snap a seven-month record run of falling. That, many would argue, is unremarkable. But combine that with a strong retail sales figure, which most expect, and the New Era paradigm of stable or falling prices could suffer a crisis of confidence.

"We are not in a permanent low-inflation, no-inflation, deflation world," says Ken Mayland, chief economist at

KeyCorp

in Cleveland.

Mayland, who thinks the yield on the long bond is headed toward 7%, says Friday's retail sales number will likely presage a strong holiday sales season. (Yes, Virginia, it's almost that time of year.)

"There is every reason for the consumer to go out and spend with abandon," says Mayland. "There is a lot of opportunity in this economy."

All of that opportunity, in the form of the lowest unemployment rate in memory, means more income, more spending and, ultimately, more inflation.

Bond traders already seem to realize this. The yield on the 30-year bond has risen 9 basis points over the past week. On Thursday, the bond fell 15/32, pushing the yield to 6.69%.

In the only significant data release Thursday, the

Labor Department

reported that

initial claims

for jobless insurance fell 14,000 last week to 310,000. The number claiming benefits was lower than expected.

Friday's numbers

(all times EDT):

Producer Price Index

for August (8:30 a.m.): Consensus calls for prices to rise 0.3% against a 0.1% decline in July. Core PPI is seen rising 0.1% against a 0.1% decline in July.

Retail sales

for August (8:30 a.m.): Consensus calls for a 0.6% rise versus a 0.6% rise in July. Excluding autos, sales are seen up 0.5% versus 0.5% in July.

Consumer Sentiment Index of the University of Michigan

for early September (10 a.m.): Consensus sees the figure rising to 105.0 from 104.4 in August.

CNW Auto Sales Trak

for the first 10 days of September (10 a.m.).

Federal Reserve Chairman Alan Greenspan

speech (12 p.m.): The Fed head speaks at a

University of North Carolina

ceremony to dedicate a new business-school building in Chapel Hill.