Monday, April 21, 2008

Gas prices disrupt U.S. consumer spending

Dramatic fluctuations in gas prices are disrupting U.S. consumer spending, leaving shoppers with less money to spend at retail and on entertainment and dining out, according to a new study by The Nielsen Company.The Nielsen's research shows that higher gas prices create a modest change in the number of average weekly gas trips, with consumers averaging 1.3 trips to the gas pumps per week, up from 1.24 trips when gas prices were at their lowest ($2.11 per gallon).

Gas prices have hit national records.An American Automobile Assoc. survey showed that the average price of unleaded regular is $3.53 in Miami-Dade and $3.50 in Fort Lauderdale, which is higher than the statewide average of $3.47.

With rising energy prices oil hit records above $115 a barrel this week, causing concern about the potential damage to the economy. Americans are spending a larger share of their income on energy than at any time since 1986. That has crimped pocketbooks and helped dampen consumer sentiment. Purchases of everything from cars to clothing are falling.Consumers will be spending nearly a fifth of their household budget on gas," said Todd Hale, senior vice president of Consumer and Shopper Insights, Nielsen Consumer Panel Services. "That kind of increase has a direct impact on what they can afford to spend and is something retailers will need to address."

Though consumers might be making more trips to the gas pumps each week to limit the amount they spend per trip, they are not able to limit the amount they spend on gas each week. Nielsen's study shows that the amount of money consumers spent on gas each week increased dramatically as a result of higher gas prices. Per trip spending rose significantly, up 40 percent from $24.42 per trip when gas was at its lowest price, to $34.11 when gas prices hit their peak. With consumers making more than one trip to the gas pump each week, overall weekly gas spending rose from $32.02 to $46.72 per household—a 46 percent increase.

"Consumers tell us they are combining errands and trips, eating out less and doing more things at home to counterbalance rising gas prices," Hale said. "Nevertheless, the amount of money spent on gas each week is still taking a huge bite out of consumers' budgets."
"We are all worth less and earning less than a year ago," says economist Mark Zandi of Moody's "That is why consumers are pulling back, and judging from the confidence numbers they are in a panic mode."

Energy prices, particularly at the pump, are now part of the presidential campaign. On Tuesday, Sen. John McCain (R) of Arizona, as part of a broad economic plan, proposed removing the federal tax on fuels, 18.4 cents a gallon for gasoline and 24.4 cents on diesel from Memorial Day to Labor Day.

"The effect will be an immediate economic stimulus - taking a few dollars off the price of a tank of gas every time a family, a farmer, or trucker stops to fill up," said Senator McCain in his speech at Carnegie Mellon University in Pittsburgh.

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