Shopping Forecast: Not Too Dismal

CHICAGO -- We've all been demoralized by the steady drumbeat of bad economic news: an imploding housing market, airlines sinking under the high cost of fuel, shoppers avoiding the mall and hoarding each penny to pay for ever-more-expensive food.

But the news may not be all that bad. The truth is, Americans are still shopping. That means small retail businesses should be able to weather the tough times ahead, as long as they focus on what consumers want (and what they can afford).

On the surface, the numbers do look grim. This week, the Commerce Department reported that retail sales fell 0.2% in the past month, the second drop in the past three months.

The report seems to fit the current pessimistic business climate: Worried about the economy and strapped by high gas prices, shoppers must be keeping their wallets shut. But look at the numbers a little deeper, and you'll see that the situation isn't quite so awful.

Certainly, things aren't looking good in Detroit, since auto sales dipped 2.8%. (I'm guessing sales of gas-guzzling Hummers and Suburbans dropped even lower.) But if you exclude cars, retail sales actually rose by 0.5%, higher than most analysts' estimates.

"Consumers are certainly spending money relative to expectations," says Jack Ablin, chief investment officer of Harris Private Bank in Chicago. "It's really a remarkable growth rate given the higher costs of food and gas."

Still, shoppers want each dollar they spend to go farther. "My sense is that the quality of what's selling is not as strong," says Ablin. "The sales growth we're seeing is among the discounters and lower-profit items."