Luschini said the retail sales data will be watched through the prism of how the Fed might read it, as the most significant data on consumer consumption ahead of its meeting. He said the market is also looking ahead to the Fed meeting to see if it tweaks its statement. "The market is a little testy of what that might be," said Luschini. He pointed to the reaction to recent comments from Fed officials and a San Francisco Fed staff paper earlier this week that said investors were behind the Fed in expectations for a rate hike.
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If the retail sales number is strong, the market may read it as a sign the data is getting stronger and will ultimately prod the Fed. "There's still an element of bad news is good and good news is bad," he said.
Economists expect retail sales gained 0.6 percent in August, and were up 0.5 percent for the retail control which excludes building materials, autos and gasoline. For July, sales were unchanged and the control group was up 0.1 percent.
"Retail sales were lackluster in the month of July. We've seen same store sales a little better," said Mark Zandi of Moody's Analytics. "Auto sales were off the charts. I'm expecting to see a pickup in core retail sales."
Zandi expects sales to be up 0.9 percent, and up 0.5 percent when excluding autos and gasoline, and 0.5 percent for the control group.
Deutsche Bank chief U.S. economist said auto sales should be up 2 percent, and if excluded from the headline number, retail sales would be up 0.3 percent. If gasoline was excluded as well, retail sales would be up 0.5 percent since gas prices fell 3 percent. He said there was an overall 1 percent decline in gasoline sales in August.
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LaVorgna expects retail control to rise 0.4 percent. That number is most important to markets because it represents the core of the report.
He is also watching July business inventories, expected to rise 0.5 percent, but he said there was risk in that they are lower due to the weaker than expected reading in July wholesale inventories.
Lipper released fund flow data after the close Thursday, which showed a flood of money moving to money market mutual funds and outflows from domestic equity funds while investors bought stocks overseas.
It said there was a net inflow of $7.4 billion, and money market funds took in $5.3 billion. Investors also bought the $223 million in MSCI Brazil Capped ETF (EWZ) and $263 million of iShares MSCI EMU ETF (EZU). Meanwhile, nondomestic equity funds had positive flows of $700 million while domestic equity funds had outflows of $600 million.
—By CNBC's Patti Domm