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Don't Discount a Bigger-Than-Expected May Retail Number

A surprisingly big May retail print alongside material upward revisions to April data would cast doubt on the notion that the economy is all set to slow down on its own.

Pretty Persuasion

ATHENS, Ga. -- Hey. Got some money to gamble?

The market is looking for the May

retail sales

report to print 0.7% overall and 0.4% sans autos. But bonds could take a beating if the numbers come in bigger than that, and a couple of things suggest they could.

One is vehicles. Manufacturers have already reported that sales of cars and trucks rose 6.3% last month; that went down as the best May showing in more than 10 years. Only the statisticians at

Census

know precisely how those numbers translate into the "automotive dealers"

portion of the retail sales report, but historical relationships suggest that we could end up seeing one of the biggest increases of the cycle. Something on the order of 3.4% -- about a point more than what most forecasters project -- is not at all unreasonable, and that would produce an overall retail sales print 0.3% higher than what the market has in mind.

The other is chain-store sales. The

LJR Redbook Research

measure rose 1.2% last month (compare to its 12-month average of 0.5%) and the

Bank of Tokyo-Mitsubishi/Schroders

measure rose 6.7% (compare to 6.2%). Increases like that almost always translate into chunky gains in both the "general merchandise stores" and the "apparel stores" portions of the retail sales reports. In fact, since 1992, when the Redbook and Tokyo measures have summed to 7.9% or more, genmerch has posted an average 1.4% pop and apparel has turned in an average 1.1% increase. The market seems to be factoring in gains only about half that big.

Finally, keep in mind that

TheStreet Recommends

revisions

might come into play. The April retail report printed 0.1% overall and 0.4% excluding autos; the forecasters at

Salomon Smith Barney

reckon that those numbers will be revised up to 0.6% and 0.7%. Looking at recent revisions, it isn't hard to see why: Between October 1998 and March 1999, both the overall and ex-auto sales series were revised higher during every month save one. And some of the revisions proved downright obscene. The originally reported February combo of 0.9%/0.6%, for example, was revised to 1.7%/1.3%, and the January tandem of 0.2%/0.2% was revised to 1.3%/1.4%.

Anyway, a surprisingly big May retail print alongside material upward revisions to April data would cast serious doubt on the notion that the economy is all set to slow down on its own. Bonds stand to swoon under such news, and the risk-lover might want to throw some dough on the table.

But hey. Don't come whining to me if the nice lady takes your money.

Crying?

There's no crying in the casino.

Side Dish

Best pyjamas?

Flannel.

Nothing.

Anything silk.

Short and see-through.

The Ward Cleaver kind.