Recovery lets shoppers lap up some luxury items.

• Position: RETAIL

Shop until you drop. It's the American way, says James F. Smith, professor of finance at UNC Chapel Hill's Kenan-Flagler Business School. "When income goes up, spending goes up."

And income has been going up in North Carolina. Personal income increased to $249.1 billion in the second quarter of 2004, a 6% jump from the second quarter of 2003, according to the U.S. Bureau of Economic Analysis. "That's an all-time record for growth in personal income for North Carolina," Smith says.

Retail sales rose 5% during the fiscal year that ended in June, according to the state Department of Revenue. Smith projected 7% growth for calendar 2004. Michael Walden, an economist at N.C. State University, projected an 8% increase. Sales grew just 1% in 2003. "I think 2004 will be the year when we turned the corner and paved the way for more economic growth," Walden says.

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Economists attribute the income gain to changes in employment: Job losses slowed in the state's traditional manufacturing strongholds--textiles, furniture and tobacco--while job creation was ahead of the national pace. At the same time, interest rates remained low, making borrowing for large purchases more attractive.

Those with money found many more places to spend it in 2004 as high-end retailers such as Saks Fifth Avenue, Burberry, Louis Vuitton and Kate Spade opened their first stores in North Carolina. Birmingham, Ala.-based Saks opened an 80,000-square-foot store in Raleigh at Triangle Town Center in September. Though that store was doing 50% more business than it expected, Saks, discouraged by a developer's delays, backed away from plans to open one in Charlotte (Tar Heel Tattler, January).

Charlotte shoppers weren't without opportunity to buy pricey wares. South Park mall opened a cache of upscale shops as part of a $100 million renovation and expansion. Nordstrom opened its second North Carolina store there in March, two years after opening one in Durham. "Getting a Nordstrom is the mark of a metropolitan area that has advanced," Smith says. "It says it's a good market, and people want to be in it."

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Despite ongoing construction of shopping centers, retail vacancy rates fell during the first half of 2004, says Brian Reece, managing partner of Karnes Research in Raleigh. The Triangle rate was 4.7% for the period, down from 5.2% the year before. Charlotte's rate was 5.5%, down from 7.3%. Both figures could rise as new stores and shopping centers...