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No matter how hard you crunch Thursday's data, the number du jour reserves the right to surprise.

The latest example came in the retail sales report for June, which the government unveiled Friday morning. The crowd was looking for a flat June; instead, the report showed that sales slumped by 0.9% last month, which is the largest drop since August 2005.

This is illustrated in our chart below:

Retail Sales

Lower sales at auto dealerships were the primary cause for the decline, and accounted for roughly two-thirds of the overall slump in retail sales. But, as one economist remarked, there's reason to stay cautious.

These big declines [in auto-related sales] followed unexpectedly large gains in May, and do not necessarily imply a marked erosion of retail activity,

wrote David Resler, chief economist at Nomura Securities in New York, in a note to clients on Friday.

But then he qualified the statement by noting that,

Nonetheless, the data do translate into a sharp slowdown in consumer spending - to 1.5% to 2% - in the second quarter that could be the start of a much slower trend in consumer spending for the rest of this year.

Perhaps the critical variable going forward will be real estate. If the worst of the real estate correction is over, as some predict, future GDP reports will look encouraging next to the meager gain for this year's first quarter.

Julia Coronado, senior economist at Barclays Capital, suggested as much to this reporter at a press conference in New York on Wednesday. The drag on economic activity from real estate in the recent past has been significant, she explained. But if housing stops deteriorating, which seems likely, then that fact alone will provide potent support for GDP in the second half of 2007, she said.

In a handout to journalists at the Barclays briefing, the company wrote that second quarter GDP (which will be formally dispatched by the government in its initial estimate on July 27), will rise 3.0%, up sharply from Q1's 0.7%. Looking into Q3, Barclays predicted a 3.5% advance in GDP, followed by 3.0% for Q4.

Perhaps. But while that outlook assumes that housing stops falling, it also supposes that consumers will keep spending. Yes, there's been a downturn recently in the rate of increase in consumer spending, as the latest retail numbers confirm. But, Coronado advised that there's a tight relationship between headline inflation and real consumer spending.

When inflation rises, spending falls, and vice versa. But Coronado predicted that headline inflation will moderate, which in turn bodes well for consumer spending, she said. Further supporting that view, wage and salary income growth is rising at a healthy clip of about 6% annualized, Barclays' analysis showed. As a result, "consumption is still benefiting from positive wealth effects," the firm counseled in the accompanying handout.

However, even if that scenario comes to pass, it nurtures risk. A buoyant U.S. economy implies that energy prices will stay high, if not climb further. In fact, the notion that oil prices will stay firm in the second half is a forecast that shouldn't be dismissed lightly, suggested another speaker at the Wednesday meeting.

Kevin Norrish, a commodities analyst for Barclays, argued that growth in oil production in non-OPEC crude has fallen short of estimates while OPEC's discipline has strengthened in curtailing production. That, combined with the prospect of a bubbly U.S. economy in the second half of 2007 suggests that oil prices aren't likely to fall substantially, and in fact may even move higher.

Maybe it's time to repeat the mantra: be careful what you wish for.

Source: June's Retail Sales Report: Should We Be Worried?