Tar Heel shoppers find reasons to keep buying.

• Position: RETAIL - Economic aspects

With energy costs, personal debt and bankruptcies rising, Tar Heel shoppers could be excused for leaving their money under their mattresses this year. But Jim Smith, a finance professor at UNC Chapel Hill's Kenan-Flagler Business School, thinks merchants will ring up more sales. "It's all functions of income and confidence."

A surprisingly strong economy boosted personal incomes 3% in the state through the first nine months of 2005, according to the U.S. Bureau of Economic Analysis. Still, Smith says, some households will have to make changes because of rising energy costs, and few economists would be surprised by volatile prices in 2006, similar to those of 2005. Gasoline prices in North Carolina averaged about $2.30 at the end of December, up about 30 cents from a year earlier. "Obviously for people who are carefully watching their budget, it's way above a year ago," Smith says. "They'll have to cut back to some degree."

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Consumer confidence got a boost when gasoline prices dipped before Thanksgiving. That helped many families decide they could spend a little more on Christmas gifts. "It was right in time," Smith says. Some Tar Heel retailers were having a good year even before Christmas. Sales at Lowe's, the Mooresville-based hardware chain, were up 16.2% to $32.4 billion through the third quarter. Sales for stores open longer than 13 months were up 5.5%.

But the good fortune didn't extend everywhere, including to the nation's top retailer, Bentonville, Ark.-based Wal-Mart. The company said its national same-store sales increased only 2.2% in December, less than analysts had expected. Other retailers that reported disappointing December sales included San Francisco-based Gap and Hoffman Estates, Ill.-based Sears Holdings, the parent company for Kmart and Sears, Roebuck and Co. Minneapolis-based Target and Seattle-based Nordstrom were among the national retailers that did well.

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In the year ahead, N.C. State University economist Michael Walden expects retailers to continue efforts to lure older shoppers, who often have more money than younger ones. Some stores, including Charlotte-based Belk and Menomonee Falls, Wis.-based Kohl's, have offered discounts to customers who can prove they're at least 55 years old. Belk sales grew more than 15% to $1.9 billion during the first three quarters, partly because it bought 47 Proffitt's and McRae's stores from Birmingham, Ala.-based Saks in July and opened 12...