- The Washington Times - Friday, January 12, 2007

Consumer spending got a bounce at the end of last year from unusually mild winter weather and slumping energy prices.

Retail sales jumped by 0.9 percent last month — the strongest showing since the summer — as consumers spent strongly on dining out and binged on pricey Christmas presents at electronics stores, home decorator outlets and auto dealers, the Commerce Department reported.

Even the slouching home sales market got a lift from unseasonably warm weather that enabled people to shop for homes, with applications for mortgages rising by 16 percent in the last week. The news sent stocks higher and raised confidence that the crash in the housing market in the last year has not daunted consumers or seriously endangered economic growth.

“Consumers are flexing their muscles again” and “taking advantage of the warm weather and lower gasoline prices by getting out of the house and driving to stores and malls,” said Bernard Baumohl, managing director of the Economic Outlook Group, an economic advisory firm in Princeton Junction, N.J.

“What’s especially revealing is how comfortable households were spending on discretionary items,” he said.

Eating out surged by 2.3 percent last month and is up 9 percent over the past year, the Commerce report said, while sales at electronics stores shot up by 3 percent last month and are 15 percent over 2005 levels. Even furniture sales grew by 0.7 percent last month and 7.6 percent over the year, despite the drop in the housing market.

While home prices have flattened or fallen in most areas and are no longer encouraging a wave of cash-out refinancings like the one that fueled hyper-growth in Christmas sales in 2005, job growth has remained solid in the last year and wage growth is at a six-year high, underpinning consumers and stoking their urge to spend, Mr. Baumohl said.

“Growth rates of employment and income are much more important drivers of U.S. consumer spending than are home sales,” he said.

Consumers also have benefited from a boost in their purchasing power as falling oil and gas prices have combined with one of the warmest winters on record to dramatically cut winter heating bills. Oil prices have fallen 13 percent from about $60 a barrel at the beginning of the year to $52.99 yesterday on the New York Mercantile Exchange. The trend has especially helped consumers in the Northeast whose furnaces run on heating oil.

“Consumers are still spending at a fairly steady clip, despite the housing market slowdown,” said Gina Martin, economist at Wachovia Securities.

Electronics stores, which had the best holiday sales season since 1994, got a big boost from the introduction of new “must-have” gaming devices and gadgets, and sales at personal care stores also were up strongly over 2005.

But the slumping housing market helped cause the worst season at home improvement stores on record.

The 5.3 percent overall growth in holiday sales at retailers seemed “ho-hum” compared with stellar 8.1 percent growth a year earlier, Ms. Martin said.

But the 2005 figures reflected a one-time boost on spending to replace homes and goods destroyed by Hurricanes Katrina and Rita in August and September.

“The economy ended 2006 in relatively good shape,” and that’s “a big relief to those who feared a destabilizing crash in housing,” said Roger M. Kubarych, economist at UniCredit Banca.

Yet while unseasonably warm weather appears to have lifted home sales temporarily, a huge backlog of houses remains to be sold and the downturn in the sector is not over, he said.

Peter Morici, business professor at the University of Maryland, said consumers are shrugging off the obstacles and following their natural urge to spend. That means the outlook for the economy remains good this year, he said.

“Lower gas prices, the realization that housing prices are moderating but not collapsing, and a buoyant stock market should keep consumers spending in 2007,” Mr. Morici said.

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