Crude oil drops, home remodeling up

Big-box hardware chain Lowe's reported strong profits from the past quarter today, thanks to an uptick in home remodeling.

David Brancaccio: More now on the markets, where in Europe earlier, the price of crude oil fell. That's wholesale, of course -- crude doesn't go well in your gas tank.

And that's where we'll start this morning, with Ellen Zentner, senior U.S. economist at Nomura in New York. Good morning, Ellen.

Ellen Zentner: Good morning, David.

Brancaccio: So it's nice when the wholesale price of crude drops, down below $125 a barrel in New York. But that is a lot higher than even a month ago.

Zentner: Yeah, it's a lot higher, and gas prices, as you mentioned, have not fallen. And in fact, they tend to lag behind oil prices, so we've got probably -- even if oil prices stay lower a few more weeks -- of rising gas prices to come. And I just think the memory is still so fresh in our minds of gas prices at this time last year when they were rising, and we ended up seeing a noticeable pullback in consumer spending in response.

Brancaccio: What about all these headlines that are suggesting or worried about gasoline at $5 a gallon? It seems a bit overdone.

Zentner: Well, depending on where you live in the country, how far you are away from the source, how far you are away from available gas stations -- prices can vary quite a bit. Also, the taxes that each state charges varies the rate that you'll pay, depending on where you live. So for the national average, we're a little bit still under $3.70 a gallon. But you are going to find places in the U.S. where gas prices are already reaching $5 a gallon. And of course, if the national average reaches $4, that tends to be that all-important psychological level that households really respond to.

Brancaccio: Now Lowe's, the big-box hardware chain, had surprising strong profits today -- stock currently up about 1.6 percent, as we're talking.

Zentner: Yeah, you know, what's really helping Lowe's and other home stores is remodeling. Remodeling reached an all-time record high in 2011; it continues to climb. With the housing market remaining out of favor, it's hard to sell your home. If you can't move and sell your home, you may as well make the box you live in better. And so remodeling has really benefitted some of those large retail chains of home goods. And especially contractors were a big source of job growth and construction last year as well, especially contractors specifically tied to the remodeling business.

Brancaccio: And apparently also the fine weather we've been having also encouraged people to go to the hardware store. Ellen Zentner at Nomura, thank you very much.

Zentner: Thank you.

About the author

David Brancaccio is the host of Marketplace Morning Report. Follow David on Twitter @DavidBrancaccio

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