Could Gas Prices Derail the Recovery?
As gas prices climb, consumer anxiety seems to rise -- and when shoppers worry about how they’ll pay for gas, it’s fair to say that they begin to assess other purchases more closely.
BIGresearch has been measuring consumer sentiment toward fluctuating gas prices monthly for several years now, asking survey respondents how the ups and downs at the pump have impacted spending and what steps they are taking as a result. The data reveals that consumers were most aggressive about making changes in spending when prices first spiked back in the fall of ’08 and through the first half of ‘09.
In January 2008, 42 percent of consumers said they were planning to drive less as a result of fluctuating gas prices. The percentage climbed to 43 percent a year later, then leveled off at around 37 percent through December 2010. Similarly, back in January 2008, 42 percent of shoppers said they planned to shop closer to home; by January 2010, the percentage of shoppers committed to shopping stores that are nearby slipped to 39 percent -- suggesting that Americans have become used to higher prices, assimilating the elevated cost of gas into their budget.
But gas prices have climbed an average of 40 cents since Labor Day; how will consumers’ spending patterns be affected this time around?
“There are a lot of factors in play here beyond rising gas prices,” says Phil Rist, executive vice president, strategic initiatives for BIGresearch. “Unemployment figures still haven’t budged much, home values continue to fall and most Americans are growing wary of reports that state taxes are likely to go up as states look to solve budget issues.”
Still, he says, “When it starts costing a few dollars more every time you need to fill up your gas tank, it can add up quickly. If you do the math over an extended period of time, it could conservatively cost $10 more per week if you fill up twice weekly -- which amounts to a minimum of $520 per year. That’s got to come from somewhere.”
Consumers are not the only ones who will need to allocate more of their income to fuel costs. It will cost more to produce transport goods, and with experts already warning of higher food prices and higher raw material costs (particularly cotton) it would seem to be only a matter of time before those costs are passed on to the consumer in the form of higher prices.
There remain industry watchers who refuse to panic over rising gas prices, pointing out that consumers always seem to find money for what they want. Moreover, they say that fuel prices don’t rank particularly high on the list of factors that could derail an economic recovery.
It’s hard to ignore the most recent data from BIGresearch, though. In just one month’s time -- from December 2010 to January 2011 -- small yet revealing shifts are beginning to surface. There are increases in the percentage of shoppers who intend to take fewer shopping trips, shop closer to home, decrease vacation/travel and drive less.
Whether consumer spending patterns will revert back to 2008 levels or show signs of improvement (as they did last fall) remains to be seen. Maybe Americans have learned from history and made adjustments that will allow them to steer clear of bumps on the budget road as a result of rising gas prices. But there’s always the chance that history will repeat itself.
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