Dec. 11 (Bloomberg) -- U.S. consumer stocks are rallying in the face of the housing slump and weaker-than-expected retail sales, and the gains may accelerate as the economy adds jobs and wages rise.

Companies from Coach Inc., the largest U.S. luxury leather- goods maker, to Big Lots Inc., the nation's biggest seller of overstocked and discontinued goods, raised profit forecasts as demand exceeded their estimates.

The shares are rising even as retail sales rose at the slowest pace in four years during the week after Thanksgiving and the average price for existing homes slipped 3.5 percent in October, the biggest year-over-year drop on record. Investors are pushing stocks higher because U.S. unemployment is near the lowest rate since May 2001 and average hourly earnings last month rose the most in more than five years.

Consumers ``will spend if they have jobs,'' said Gil Knight, who helps manage $40 billion and favors consumer shares at NWD Investments in West Conshohocken, Pennsylvania. ``When you go into the mall parking lots and you can't find a place to park, it tells me that we're having a good year.''

Shares of companies relying on consumers' discretionary spending beat the Standard & Poor's 500 Index as stocks rose last week. The S&P 500 added 0.9 percent to 1409.84 and set a six-year high of 1414.76 on Dec. 5.

The group, including hotel and media companies as well as retailers, has risen 22 percent from its 2006 low on July 21. Only technology shares have done better among the 10 main industries in the S&P 500.

Knight owns J.C. Penney Co., the third-largest U.S. department-store chain, and Sotheby's, the world's second-largest auction house. So-called consumer discretionary stocks are still a bargain because increased household spending has translated to higher retail sales and earnings, he said. Consumers account for two-thirds of the U.S. economy.

Cheaper Than Usual

The S&P 500 consumer index is valued at 20 times forecast earnings, less than the 10-year average of 36 times, according to data compiled by Bloomberg.

While the group is 26 percent more expensive than the S&P 500 based on price-earnings ratios, the premium is smaller than the average for the previous decade, 32 percent. The S&P 500 is valued at 16 times projected profits.

Stocks rose last week as the government reported a bigger increase in jobs for November than economists forecast. The Dow Jones Industrial Average added 0.9 percent to 12,307.49 and the Nasdaq Composite Index gained 1 percent to 2437.36.

``We've been hearing about the death of the consumer for some time,'' said Edgar Peters, chief investment officer at PanAgora Asset Management in Boston, who oversees $21 billion. ``As long as people feel secure in their jobs, they will keep spending.''

Higher-Paying Jobs

The economy added 132,000 jobs, the government said, exceeding the median estimate of 100,000 among economists surveyed by Bloomberg News. Unemployment rose to 4.5 percent from October's 4.4 percent, a five-year low.

Average hourly earnings increased 4.1 percent, the most since March 2001. Wages for non-management employees rose 2.8 percent in October after adjusting for inflation, the fastest growth in eight years, according to the Bureau of Labor Statistics. In October 2005, wages fell 1.5 percent.

Coach lifted its full-year earnings forecast in October after fiscal first-quarter profit rose 34 percent. The New York- based company expects the average sale to rise this quarter as customers buy the Legacy line of clothes, shoes and handbags, costing 45 percent more than Coach's other products.

Shares of Coach, which fell to a 15-month low on July 18, have surged 64 percent since July 21. The gain is the group's second-biggest behind Goodyear Tire Co., up 78 percent.

Falling Home Prices

Big Lots, based in Columbus, Ohio, last month raised its full-year forecast because of rising sales and better inventory management. The retailer expects to earn most of this year's profit as it clears out overstocked goods after the holiday season ends. The stock has added 49 percent since July 21.

The slump in housing lingered as the forecasts were made. The average sale price for existing homes slipped 3.5 percent in October, the biggest year-over-year drop on record, the National Association of Realtors said two weeks ago. Home prices declined that month for the first time in 13 years, the government said.

Credit Suisse's Ivy Zelman, the top-rated U.S. housing analyst in Institutional Investor's latest survey, said last week that sale prices may decline further in the first quarter.

Toll Brothers Inc.'s Robert Toll, chief executive officer of the largest U.S. builder of luxury homes, said during the week that improvements in housing markets such as northern Virginia haven't spread to other parts of the country.

`Pretty Negative'

Consumers can't borrow as much against the value of their homes as prices drop and may be less willing to spend. Americans are too bloated with debt as it is, said Randy Bateman, chief investment officer at Huntington Capital Corp. in Columbus, Ohio, who oversees $12 billion.

``We're pretty negative'' on consumer stocks, he said. ``The consumer is pressed. The high level of indebtedness of most consumers is going to restrain the euphoria.''

Even so, the slump has done little to deter consumers. Growth at U.S. service industries, including retailers, banks and hotels, unexpectedly accelerated in November for a second month as a strong labor market lifted spending, the Institute for Supply Management reported.

``When the economy is creating a lot of jobs, people are more confident,'' said Louis Navellier, who manages $5.5 billion at Navellier & Associates Inc. in Reno, Nevada. ``It should be a great holiday season. They have more money in their pockets.''

Dollar's Benefit

High-end retailers such as Nordstrom Inc., a department- store chain, and Tiffany & Co., the world's second-largest seller of luxury jewels, may get a boost as a weaker dollar lures more Europeans on shopping sprees. The U.S. currency reached a 20- month low against the euro and a 14-year low against the British pound this month.

Shares of Nordstrom, based in Seattle, have climbed 50 percent since July 21. New York-based Tiffany has advanced 29 percent. Both companies lifted their full-year profit forecasts because of increased holiday demand.

NWD Investments' Knight said income growth, especially in industries such as technology and finance, will enable Americans to pay debt without having to rein in spending.

``Consumers are a tough breed to herd,'' Knight said. Plus, ``every hedge-fund manager in Greenwich, Connecticut is going to have to buy a Picasso.''

To contact the reporter on this story: Michael Tsang in New York at mtsang1@bloomberg.net.

Last Updated: December 10, 2006 19:06 EST