Businesses, consumers giving economy a boost

WASHINGTON -- American businesses and consumers are giving the economy a boost by spending more, but the troubled housing market remains an obstacle, new data show.

Consumers bought more from retailers for a seventh straight month in January. The gains came despite snowstorms that limited spending from workers with more money in their paychecks from a Social Security tax cut.

Businesses increased their stockpiles in every month last year, a sign that companies expect sales to remain healthy.

Still, the view of the housing market among homebuilders hasn't changed in four months, suggesting weak home sales will drag on the economy throughout the year.

Chris Christopher, an economist at IHS Global Insight, said consumer spending will likely continue to increase over the next few months. But he predicts it will happen more slowly than at the end of last year, even with workers taking home more pay from the tax cut.

"Winter storms, a poor housing market, rising gasoline and food prices, and lackluster employment growth ... put a damper on things," Christopher said.

Retail sales rose 0.3 percent last month to $381.6 billion, the Commerce Department said Tuesday. Sales have risen more than 14 percent from the recession low in December 2008.

People spent more at department stores and on electronics while also paying higher prices for gas. Online sales increased at a healthy pace.

Still, the harsh winter weather -- which brought many cities in the Southeast to a standstill for days -- slowed traffic at restaurants and building supply stores. Americans also spent less on clothing and furniture.

The snow slowed what was looking to be another strong month for car sales, which ended up rising only 0.5 percent after a 1.5 percent gain in December.

Nine inches of snow fell in Winchester, Tenn., a town normally accustomed to a few inches all winter. That shut down business at Russell Barnett's auto dealership for nearly a week in January. During the other three weeks, he had enough business to match last January's sales.

"If we'd have had another week in there similar to the other three, we'd have been up considerably," Barnett said.

Part of the overall retail sales gain last month reflected higher gasoline prices. Sales at gasoline service stations climbed 1.4 percent. Excluding the rise at gas stations, retail sales would have risen 0.2 percent last month.

January is a time when stores clear out winter goods at deep discounts to make room for spring merchandise. It is the least important month of the year for retailers. Still, last month showed an underlying healthy consumer demand as shoppers took advantage of clearance sales to replenish their wardrobes.

As part of the broader consumer picture, Laura Gurski, a partner at A.T. Kearney, says she believes the January government sales reports showed the Social Security tax cuts are helping to lift sales at grocery stores.

"Consumers are spending (the extra money) on the basics," she said. But she added they're not buying big-ticket items.

Businesses appear to expect consumers will keep spending. Companies added to their stockpiles for a 12th consecutive month in December, the Commerce Department said. That suggests further growth at U.S. factories that could lead to more hiring in the months ahead.

A separate report Tuesday pointed to further strength in factory production. The Empire State Manufacturing Survey showed that conditions for New York manufacturers are improving. The survey's index of business conditions rose to an eight-month high.

Economists think inventories will keep rising as long as sales remain strong and businesses have confidence that the demand will continue. That should boost demand at U.S. factories, and ultimately lead to more jobs.

But those jobs are unlikely to come from homebuilders, who remain pessimistic after the worst year for new-home sales in nearly a half-century.

The National Association of Home Builders said Tuesday that its index of builder sentiment remained unchanged in February for the fourth straight month at 16.

Any reading below 50 indicates negative sentiment about the market. The index hasn't been above that level since April 2006.

Retailer Home Depot Inc. expects Americans to start spending more on home and garden projects as the weather improves. The company said Tuesday that it will hire 60,000 temporary workers for the spring shopping season, its busiest time of the year. That's similar to last year's level of seasonal hiring, the company said.

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AP Business Writers Anne D'Innocenzio in New York, Tom Krisher in Detroit, and Derek Kravitz in Washington contributed to this report.