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Spending is up, but not on U.S. vehicles

By ASSOCIATED PRESS
Published June 2, 2006

The U.S. economy appears to be shifting into a lower gear with residential construction falling sharply and manufacturing activity slowing.

Investors got mixed signals on inflation in a raft of new economic data on Thursday, with a key gauge of wage inflation posting an improved reading while a barometer of manufacturing prices posting a sharp increase.

The Dow Jones average climbed 91.97, or 0.82 percent, to 11,260.28; the Standard & Poor's 500 index gained 15.62, or 1.23 percent, to 1,285.71; and the Nasdaq surged 40.98, or 1.88 percent, to 2,219.86, returning to positive territory for 2006.

On the slowdown front, the Commerce Department reported that residential home building dropped by 1.1 percent in April, the biggest decrease since January 2004.

In other signs of slowing, a key gauge of manufacturing activity edged to the lowest level in nine months. The Institute for Supply Management's manufacturing index dipped to a reading of 54.4 in May, down from 57.3 in April.

RETAIL SPENDING POSTS HEALTHY GAIN

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 are faced with some big purchasing decisions: whether they should spend on summer vacations, for example, or buy more apparel and other items.

May's winners cut across all sectors included Target Corp., Federated Department Stores Inc. and J.C. Penney Co. Inc. Gap Inc. and Sharper Image Corp., which continue to struggle with their merchandising strategies, again were the laggards last month.

While shoppers have remained resilient amid gasoline prices, the fear is that consumers will inevitably 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.

FLORIDA HOMES POST SECOND-HIGHEST RISE

Average U.S. home prices rose 12.5 percent from the first quarter of 2005 to the first quarter of 2006, the Office of Federal Housing Enterprise Oversight said Thursday.

OFHEO said housing prices continued to rise the most in Arizona, up 3.8 percent in the first quarter of 2006 and up 35.5 percent from the first quarter of 2005.

Home prices in Florida rose 26.6 percent from the first quarter of 2005, giving the state the second-highest price appreciation, OFHEO said. Of the 20 metropolitan statistical areas, or MSAs, with the largest house price gains, 10 were in Florida.

The five metropolitan statistical areas showing the greatest price growth over the first quarter of 2005 were St. George, Utah, with a 38.4 percent increase over the first quarter of 2005; Naples-Marco Island, at 37.7 percent; Cape Coral-Fort. Myers, at 36.9 percent; Phoenix-Mesa-Scottsdale, Ariz., at 36.5 percent; and Lakeland at 36.5 percent.

U.S. AUTOMAKERS LAG TOYOTA, HONDA

Toyota Motor Corp. and Honda Motor Co. saw double-digit U.S. sales increases in May as consumer demand for more fuel-efficient vehicles grew, the automakers reported Thursday.

General Motors Corp. said its sales were down 12 percent for the month, while Ford Motor Co. said its sales were down 2 percent and DaimlerChrysler AG's Chrysler Group said sales were down nearly 11 percent.

Toyota's overall sales were up 17 percent and car sales were up almost 25 percent thanks to strong sales of the automaker's new Yaris subcompact as well as the redesigned Camry. Both cars went on sale in March.

Honda's car sales shot up 21 percent as the Fit subcompact and redesigned Civic hit the market, while truck and SUV sales were up 9 percent thanks to strong sales of the Pilot crossover and Ridgeline small pickup.

[Last modified June 2, 2006, 06:05:29]