There are a few influential data sets each month, and next week will see them bunched together, with reports on retail sales and consumer prices.

In a way, the reports are related. The consumer price index report tracks prices charged for goods -- not just retail transactions, but housing expenses, health care and education as well -- while the retail report follows what we actually buy.

To some economists, the retail report is one of the most critical in analyzing the strength and future direction of the economy. Retail transactions represent about one-third of total consumer spending, which in turn is about 70% of the total economy.

The logic goes like this: The more consumers buy, the more will have to be produced -- and as production increases, so will jobs, which will further increase demand, and so on.

There is though another, perhaps more subtle link: retail sales can rise or fall without consumers broadening their spending. That’s because the retail sales report does not adjust for price changes, so sales can be reported as higher if, for example, gasoline prices increase. Gasoline sales account for about 10% of total retail sales, and the movement in pump prices can influence retail sales. The price of a gallon of gasoline rose about 1% from February to March.

Of course, retail spending is influenced as well by income and in March, according to data from the Bureau of Labor Statistics, average weekly earnings -- a function of both average hourly earnings (which increased) and the average workweek (which fell) -- declined 0.1%, the first month-to-month decline since September. When average weekly earnings fell in September, retail sales plunged 1.6%, the largest percentage month-over-month decline since November 2001. [Gasoline prices, by the way, fell about 3.5% from mid-August to mid-September, the periods of the month used for measuring retail sales.]

Another factor, of course, is how many people were working to collect the average weekly earnings. In March household employment fell again with 861,000 fewer people working than in February. Again doing the arithmetic, aggregate earnings (the product of average weekly earnings and the number of people working) dropped in March, 0.7% from February. Year-over-year, aggregate earnings are down 2.1%, not only the largest year-over-year decline but the third consecutive month of a year-year drop. In the 45 year history of BLS data tracking of average weekly hours and annual earnings, aggregate income had never fallen year-year until three months ago.

There is a distinct difference in tracking jobs and employment. Take the case of an individual with two jobs. If one job eliminated, payroll jobs would drop, but employment would not since the individual is still working and thus included in the employment statistics.

There are, of course, other ways to generate cash for spending and the ongoing uptrend of mortgage refinance applications provides an important source. According to the Mortgage Bankers Association, refinance applications have increased for five straight weeks for the first time since August 2006 (a six-week streak from the week ended July 21, 2006 through August 25, 2006). In the last five weeks, the MBA’s refinance index jumped 122.4% compared with the 16.8% increase in 2006.

During the 2006 refinance boom, about 88% of homeowners took cash out when refinancing -- defined by Freddie Mac as a new loan of at least 5% higher than the old loan. In the fourth quarter of 2008 -- the most recent data -- 62% of refinance transactions resulted in cash out for the borrower. There are other important differences, significantly the down drift of home values and the tighter lending standards adopted by banks, which could tamp down available cash for retail spending.

The retail sales report -- combined the report on consumer sentiment from the University of Michigan next Friday -- will take on added significance because of the slow economy according to a new study from the Federal Reserve Bank of Chicago.

“Research has shown that consumer expectations align more closely with spending during periods of weakness in the economy, and the forecasting contributions (or predictive power) of consumer sentiment appear to be stronger when the economy is weaker,” according to Chicago Fed economists Maude Toussaint-Comeau and Daniel DiFranco, writing in the most recent edition of the Chicago Fed Letter.

During times of greater economic uncertainty, as consumers perceive greater risk, they tend to accumulate precautionary savings to insure against a sudden loss in income.

That income is a factor in retail spending -- beyond the obvious -- was supported by the Chicago Fed study.

“A large body of research suggests that measures that indicate a consumer’s “ability” to pay strongly predict consumer spending. These include measures of income; wealth; and macroeconomic indicators, such as the unemployment rate, changes in the stock market, and inflation. An increase in the unemployment rate or a recession period is likely to generate an increase in uncertainty among consumers, even among those who may not themselves be unemployed.”

The Chicago Fed economists also supported the link between consumer price index data and retail sales.

“Increased inflation decreases the purchasing power of the consumer, possibly lowering consumer confidence,” they wrote. “Greater price volatility also creates more uncertainty surrounding real wage changes. Therefore, we would expect increases in inflation to be negatively related to consumer sentiment and spending.”

One other factor in matching March retail sales this year and last will be the calendar. Easter is a bit later this year (April 12) than last (March 23), which will have an impact on sales.

Housing data will also be closely watched next week, especially in light of the large declines in mortgage interest rates, influencing purchase applications (also up five weeks in a row, but for the first time in 11 -- not three -- years). That activity could be reflected in Tuesday’s builder confidence index which rolls together builder sentiment about immediate home sales and six months out as well as buyer traffic. Those views flow directly into housing permits and starts, to be reported Wednesday.

Mark Lieberman is the senior economist for the FOX Business Network. Prior to joining FOX, he served as first vice president and manager of economic analysis and research at Washington Mutual in New York. Before that, he served as senior vice president at Dime Savings Bank of New York (which was later acquired by Washington Mutual), where he specialized in credit and risk management. He is a member of the Executive Committee of the New York Association for Business Economics. He has a degree in Economics from the Wharton School of the University of Pennsylvania.