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Consumer Spending Could Break Out in 2013

It’s hard to imagine any sustained economic recovery without continued improvement in housing or consumer spending trends. Thankfully, some of the data out this week shows both fronts are looking good.

On the homes front, the CoreLogic home price report for November 2012 included a 7.4% year-over-year increase and a 0.3% month-over-month increase from October to November. This is less sexy than the much-touted Case-Shiller data, but much more comprehensive. CoreLogic uses a three-month weighted average, isn’t seasonally adjusted, and takes into account a much larger area than the mere 20-city composite of Case-Shiller.

That said, the most recent Case-Shiller data showed a 4.3% year-over-year increase for the month of October — with 19 out of 20 cities improving month-over-month.

And if you need further proof of upward momentum in housing, consider high fliers in the sector. Builder PulteGroup (NYSE:PHM) is up 150% in the past 12 months, Lennar (NYSE:LEN) is up 85% and Toll Brothers (NYSE:TOL) is up 50%. Home improvement retailer Home Depot (NYSE:HD) is up 45%, too.

On the spending front, retail sales were up 0.5% in December — slightly better than the 0.4% rise in November and strongly ahead of estimates for just 0.2% growth. Particularly encouraging was a 1.6% jump in auto sales to close out the best year in car sales since 2007, before the financial crisis. Consider the 40% run in Toyota (NYSE:TM) across the last 12 months or 25% in General Motors (NYSE:GM) despite softness in Europe and China for both automakers.

Also strong was the amount of growth in restaurant spending, which was up 7.7%. As Joe Weisenthal of Business Insider pointed out, “People don’t go out to eat when they’re not feeling good” about the economy. DineEquity (NYSE:DIN) — operator of Applebee’s and IHOP, among other franchises — is up almost 50% in the last year. Denny’s (NASDAQ:DENN) is up 35%.

Other encouraging details include spending of 1.4% more at furniture stores and 1.4% at health and personal care shops. Yes, 2012 was the worst year for retail sales since the Great Recession, with a 5.2% increase in the calendar year, but that could be on the mend now that some of the uncertainty of the presidential election and fiscal cliff are behind us.

We still have a tough row to hoe in the short-term, what with the debt ceiling sword-rattling in D.C., higher payroll taxes taking their first bite into Americans’ paychecks, and the prospect of just 2% GDP growth this year overall as businesses continue to slog along in efficiency mode rather than growth mode.

But you can’t discount the importance of consumers. With more equity in their homes and a little more confidence leading them to spend on autos and eating out, you have to be a bit encouraged.

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Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the stocks named here.

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