If you are married to the idea that the U.S. economy remains mired, that confidence is dim and the consumer is in retreat, you can come up with plenty of pretty reasons for the unexpected strength of retail sales in January.

You can say the rebound in sales was merely weather-related, that there was a lot of pent-up demand from a cold November and December, and now that demand has been exhausted. You can say that the jump came because companies were discounting aggressively, clearing out their Christmas stock, trying desperately to strip down inventories to better handle an economic slump, and that consumers were responding merely to that. Even in the worst of times, after all, everybody loves a bargain.

But those objections aside, there is little doubt that the January retail sales report came in strong. Overall, sales gained 0.7%, compared to forecasts of 0.6% growth and December's 0.1% increase. Excluding autos, sales picked up 0.8%, double the 0.4% rise economists expected and well above December's flat performance.

"Overall, this is good news for the economy, because we need to maintain some consumer spending," says

Credit Suisse First Boston

economist Mike Cloherty. The big worry is that companies' inventory-reduction efforts will get people worried about their jobs, muting spending. The strength of these numbers suggests that company cutbacks have not, to borrow a phrase from

Fed

Chairman Alan Greenspan, breached the fabric of consumer confidence.

Although such a strong report would normally hurt the bond market, which is counting on the Fed's continuing to cut rates aggressively, so far

Treasuries have held up well. There are two reasons.

First, there's already been a good deal of discussion about the strength of sales in January, with many market participants betting that that strength was only fleeting. In fact, anecdotal reports suggest that sales have softened in the last couple of weeks.

Second, Greenspan is testifying before the Senate this morning. With the Fed worried greatly about consumer confidence, many investors are reckoning that he'll not say anything negative. "The reaction in bonds today will depend on his degree of emphasis on the recovery scenario," says

Miller Tabak

chief bond market strategist Tony Crescenzi. "He can't sound unfriendly too early."

That should be music to stock investors' ears. An economy that isn't so bad and a Fed that's friendly could sit equities in the catbird seat.