- The Washington Times - Thursday, June 1, 2006

NEW YORK (AP) — Consumers apparently shook off their worries about higher gas prices during May, shopping with enthusiasm at apparel stores and malls and giving many retailers better-than-expected results. A big exception was Wal-Mart Stores Inc., whose low-income consumers are feeling the biggest financial squeeze from $3-a-gallon gas.

But the outlook for consumer spending remained uncertain as shoppers face some big purchasing decisions: Whether they should spend on summer vacations, for example, or buy more apparel and other items.

“The gas drag is a problem for some, but not a broad drag,” said Michael P. Niemira, chief economist at the International Council of Shopping Centers. But he predicted that amid mounting financial pressures, “there is likely going to be a second-half [consumer spending] slowdown.”

Donald Soares, principal of the consumer products group of Capgemini U.S. LLC, a consulting group, was more upbeat.

“Consumers do have the money to spend. And we see this trend continuing,” he said.

Based on sales reports released by the nation’s merchants yesterday, May’s winners cut across all sectors and included Target Corp., J.C. Penney Co. Inc. and AnnTaylor Stores Corp., Gap Inc. and Sharper Image Corp., which continue to struggle with their merchandising strategies, again were among the notable laggards last month.

The International Council of Shopping Centers-UBS sales tally of 52 retailers rose 4.1 percent in May, better than the 3.2 percent gain expected. The tally is based on sales at stores opened at least a year, known as same-store sales. Same-store sales are considered the best indicator of a retailer’s health. May’s sales pace is in line with the 4.2 percent gain averaged from January through April.

While shoppers have remained resilient amid high gasoline prices, some fear that consumers inevitably will cut back their spending at malls and stores as the heavy summer driving season kicks into gear. Shoppers also face mounting pressures from higher interest rates, which make financing debt more expensive, as well as a cooling housing market.

Such economic head winds clearly are making consumers more concerned. The Conference Board said Wednesday that consumer confidence fell in May, recording its steepest drop since the aftermath of Hurricanes Katrina and Rita last year.

The Labor Department yesterday reported that the number of newly laid-off workers filing claims for unemployment benefits unexpectedly rose last week to 336,000. Even with the modest increase, the government is expected to show that non-farm payrolls have added a healthy 170,000 jobs, up from a disappointing 138,000-job gain in April, when it releases monthly figures today. The unemployment rate is expected to remain at 4.7 percent.

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