- The Washington Times - Wednesday, February 15, 2006

Consumers, energized by unusually warm weather and the tame heating bills that went with it, hit the malls with gusto last month, sending retail sales soaring by 2.2 percent — the biggest jump in six years.

The sales spurt, which coincided yesterday with a drop in premium crude oil prices below the psychological threshold of $60 a barrel, sent the Dow Jones Industrial Average surging by 136 points to 11,028.

“You have lower oil prices; you have a healthy employment situation; and you have a consumer that is still willing to do a little bit of spending,” said Gordon Fowler, chief investment officer at Glenmede Trust Co. “That all adds up to a positive for the economy.”

The biggest drawback is that the consumer rebound may encourage the Federal Reserve to keep raising interest rates — a possibility that newly installed Fed Chairman Ben Bernanke is expected to address in testimony today.

Triggering the excitement yesterday was a Commerce Department report showing that retail sales, excluding autos, last month zoomed the most since December 1999 after inching up 0.2 percent in December. Including autos, sales were up 2.3 percent — the biggest jump since May 2004.

“It looked like consumers were hibernating in December, and all they needed was an excuse to go on a spending spree,” said Brian Bethune, an economist at Global Insight Inc. “The weather provided that.”

Consumers often stay at home during cold and snowy weather. But last month they enjoyed springlike conditions in many areas, with January making history books as the warmest in a century.

Aside from inspiring the urge to shop, one major boon from the mild weather was that a widely anticipated spike in winter heating bills never occurred. Many consumers had been bracing for big bills after Hurricanes Katrina and Rita struck in August and September and sent the price of natural gas and heating oil spiraling to record levels.

By yesterday, oil and gas prices had fallen to pre-hurricane levels as the warm weather sapped the demand for fuel. Many utilities fear they may be left with unused stores of fuel they stockpiled for the winter.

The lower heating bills appear to have left some homeowners with spare change that they spent shopping.

“Retail sales posted stunning results,” said Scott Hoyt, analyst with Moody’s Economy.com, noting that sales at clothing stores soared by 4.6 percent while department stores rang up a 1.6 percent jump in sales. Over the year, sales were up by nearly 9 percent.

The sales rebound boosted the stocks of Wal-Mart, Home Depot and other retailers yesterday.

The exceptional spending spurt could spur growth as strong as 5 percent in the first quarter, up from an anemic 1.1 percent pace set in the fourth quarter of 2005, economists said.

Many economists had been expecting consumer spending to remain subdued because consumers had been on a debt binge that culminated last year with them spending more than they earn, collectively, for the first time since the Great Depression.

One explanation of the spending surge is that consumers took advantage of gift cards that were sold widely at Christmas. The popularity of gift cards has extended the Christmas shopping season — the busiest of the year — increasingly into January, which traditionally had been a slow sales month. Gift cards do not count as sales until they are redeemed.

Analysts say the jump in sales likely was exaggerated because the Commerce Department’s adjustments for seasonal variations in spending likely are not fully taking into account the new Christmas spending pattern.

The department figures also are not adjusted to reflect price increases, thus the sales figures were inflated by higher prices, such as those for gasoline during the month.


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