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To: Steeny who wrote (21357)	6/11/1999 10:10:00 AM
From: Tom Tallant	Read Replies (2) \| Respond to of 41369

Steeny & Thread What's your thought on this: Last months PPI was revised up significantly. It was more in line with last months CPI. This months PPI is much lower than lasts. I'm wondering if there is a correlation. I know there is a time lag factor involved when comparing the two and I also realize retail sales where up...however, don't you think the recent jump in bond yields and a decline in the stock market will slow sales...particulary the auto sales (which was the biggest gainer this month) and housing? I guess what I'm trying to figure here is- have we already started slowing...and if so...when will the market figure it out? TIA Tom

To: Steeny who wrote (21357)	6/11/1999 11:39:00 AM
From: Tunica Albuginea	Read Replies (2) \| Respond to of 41369

Steeny, Rubin just said, in Germany, that he does not think the Fed should raise interest rates. These are the current numbers. Exactly what do you see in these numbers that you think should cause the Fed to raise rates? Remember, the Fed's Congressional mandate is to keep prices stable. Prices are stable now. The world economy is still on the incubator. A " preemptive rate increase could throw a monkey wrench in it ". I don't think Greenspan wants that, Note:Below you will see " Auto sales in May were screaming. Manufacturers reported that sales increased from a 13.8 mln unit pace to a 14.9 mln unit pace, I would like to remind you that in 1972 auto sales were 16 mill units! So in the last 30 years we have had NEGATIVE AUTO SALES ! interactive.wsj.com May Retail Sales Commentary and background from Briefing.com. See an index of reports. Updated: 07-Jun-99 Highlights Market Consensus: 0.6% total; 0.4% ex-autos. Briefing.com Forecast: 0.8% total; 0.4% ex-autos. Key Factors After a two-month respite from stellar growth, retail sales look set to post a healthy 0.8% total increase, and an equally respectable 0.4% ex-autos gain. Robust May auto sales will, of course, be the focus for the total, but strength will also be seen in the non-auto durables series, which is expected to increase by 0.7%. The ex-auto number will likewise be boosted by an expected 0.4% increase in retail nondurables. Retailers are attributing the May strength to better-than-expected sales from Mother's Day, a rash of home-related product sales, and an overflow effect from people who were turned away at the new Star Wars movie. The late Memorial Day holiday is expected to have been a slight encumbrance on retail sales in May, as it is anticipated that sales from that weekend will fall into the June accounting. Auto sales in May were screaming. Manufacturers reported that sales increased from a 13.8 mln unit pace to a 14.9 mln unit pace, and that is expected to be quite the boon to total retail sales (the expected 2% increase in retail autos should add 0.4% to the total). The strength in non-auto durables will mainly be coming out of the furniture component, which is expected to increase by 1%. Sales of retail nondurable goods are expected to rise by 0.4% in May. Leading the way will be the apparel component, which reportedly benefitted the most from the Star Wars overflow. The only decrease in the nondurables component should be the drug and proprietary line item, which is expected to decline by 0.3% -- a bit of payback for above-trend strength. The gas story will not be an issue in May, as prices at the pump were seen increasing by only 1-2%. Retail sales ex-autos and gas is expected to rise by 0.4%. Big Picture Comparatively, the expected May increase, while historically strong, still doesn't measure up to the robust growth we were witness to in Q4 1998 and Q1 1999. However, retail sales were probably due for a bit of cooling, as the total posted a 12.7% increase in Q4 over Q3 and a 12.9% increase in Q1 over Q4. In May, quarter/quarter growth should slow markedly to 3.9% from 7.6% in April, but that is not that far below the 5.49% average quarter/quarter growth seen since the beginning of 1991. What's more, it would only take a monthly increase of 0.6% in June to boost the quarter/quarter number back up to over 6%. A monthly gain of this magnitude is entirely feasible, as retailers are anticipating that sales in June will be boosted by Father's Day and the late Memorial Day holiday. The Fourth of July holiday is expected to be a boon for July sales, but going forward, sales are expected to slow as the result of higher mortgage interest rates, which reduces refinancing activity, and in turn, means less disposable cash in the consumer's pocket. Auto sales are also expected to slow down in the next six months, and high gas prices are also of concern for retailers. Annual Retail Sales Increases 1998: 6.7%. 1997: 4.3%. 1996: 5.7%. 1995: 4.5%. 1994: 7.5%. 1993: 6.3%. 1992: 5.2%. 1991: 0.6%. 1990: 4.9%. Category May Apr Mar Feb Jan Retail Sales 0.8% E 0.1 0.1 1.7 1.3 ....Excluding Autos 0.4 0.4 0.4 1.3 1.4 ..Durable Goods 1.4 -0.3 -0.6 2.6 1.3 ....Building Materials 0.3 0.2 -1.7 3.6 2.5 ....Autos 2.0 -0.8 -1.1 2.9 1.0 ....Furniture 1.0 0.7 0.9 1.5 0.6 ..Nondurable Goods 0.4 0.4 0.6 1.0 1.3 ....General Merchandise 0.2 -0.4 0.9 0.6 2.9 ....Food 0.2 -0.3 -0.1 1.3 Unch ....Gasoline 0.5 2.4 2.5 0.5 -0.1 ....Apparel 1.0 0.9 0.2 0.5 4.1 ....Restaurants 0.5 0.5 -0.4 1.4 -0.7 ....Drug Stores -0.3 1.0 0.9 1.9 2.5 Return to top of page --------------- you said TA, I don't see much inflation either, but there will be a raise of 25bps nonetheless. Fed doesn't want to be considered behind the curve. I and you don't know where it goes from there. Q2 consumption on track to grow 5%. This is not benign enough for the Fed. Japan GDP #s grew 1.9% after dropping almost 1% last year. This stunned many economists. Shows Asia recovering quicker than some had thought. We have argued about all the recent #s before. There were enough strong #s to make all the funds stop and see what the Fed will do. IMO, this has caused the tech selloff. There will be no recovery until we see some very benign #s. Look at a graph of AOL in '96 vs the rising bond yield.