Purse strings tighten as gas costs soar

WASHINGTON (Reuters) - Lee Nichols was looking forward to making a cross-country trip from Washington to Colorado and New Mexico this August, but soaring gasoline prices are putting a crimp in his plans.

"I don't think I'm going to go anymore," he said as he filled up his aging black Mercedes at a gas station in an affluent Washington neighborhood.

"Once gas prices go above $3, I cut back," said Nichols, who walks dogs for a living.

"I used to love to drive. Now I don't."

Nichols is one of many Americans feeling the squeeze from record-high gas prices. Retail gas prices hit a high of $3.22 in late May, according to the Energy Information Administration, and have hovered around $3 since.

The EIA expects the cost to climb further during this year's peak summer driving season, as many families prepare to hit the road in the annual pilgrimage to sand and water.

Nichols said he's made short-distance trips to the beach on weekends -- but he makes sure to carpool. And he recently put a bike rack on the back of his car, so he can split his time between driving and pedaling.

"I'll drive five miles close to where I'm going, and bike the next ten to twenty miles. I've been cutting daytime driving by half," he said, adding, "I'm trying it this summer. It takes a lot longer than driving."

SAVING ENERGY

Nichols is not alone. In a Reuters/Zogby poll released July 18, 39 percent of the 524 surveyed compensate for high energy costs by curbing energy use.

But for many Americans, the demand for energy is inelastic. They must commute to work, pick up groceries and kids and they need gasoline to do it.

Consumer frustration with gas prices already may be hitting the economy. June's overall retail sales dropped a startling 0.9 percent, the largest drop since August 2005, and economists pointed to lofty gas prices as the culprit.

"When gas prices spike, there seems to be a downturn in other discretionary spending, particularly retail spending," said Geoff Sundstrom at auto and travel association AAA.

Officials at the Federal Reserve have taken notice, but hope spending picks up when gas prices come down to earth.

"Personal consumption expenditures appeared to be rising more slowly in recent months than earlier in the year, but that development was probably, at least in part, a result of the rise in gasoline prices, which was not expected to be extended," the Fed said in minutes of a late-June meeting released on July 19.

Barb Vollet, who works in corporate sales at a hotel company, said she's cut back on shopping and going out.

"It's more on the 'wants' rather than the 'needs'," she said. "I think more about where I go out. I'm not going to go to a really expensive restaurant, I'll pick a cheaper one. I eat at home more. It's definitely taking a toll."

According to Richard Curtin, director of the Reuters/University of Michigan Survey of Consumers, department store sales are hurting, too.

BARGAIN HUNTING

"For consumers, the first line of defense is to shop for discounts," he said, noting that it isn't just energy prices depressing retail sales, as the sinking housing market also drags down sales in furniture and appliances.

Wal-Mart, the world's largest retailer, reported on July 12 modest growth in merchandise sales for June and the first week of July, and cited the squeeze consumers feel at the pump for the lackluster results.

"Consumers continue to be challenged financially, with more pressure on discretionary spending," said Eduardo Castro-Wright, CEO of Wal-Mart's U.S. operations. "Gas prices have moved to be their chief concern in our latest survey."

Stores like Wal-Mart that cater to lower-income Americans may feel the squeeze more acutely than other businesses because many of their customers have no choice but to pare spending on other items when gasoline prices rise.

While consumers are tightening their belts to accommodate expensive fuel, some people are taking the prices in stride.

"This is actually a pretty reasonable gas station," Brad Sammis said as he eyed the $3.04 sign. "It's cheaper than the one across the street. I don't know why people go there."

The station across the street was charging $3.09 a gallon.

Sammis, a legal assistant in Washington, said that he hasn't felt much of the strain from high energy prices.

"People expect gas prices to go up and hit a peak in late August and early September, and then come back down as they have experienced for the past few years," said Curtin.

But, he added, Americans are beginning to get used to the sticker shock when they fill up.

"If you ask them about overall, how do you expect gas prices to act over the next year or the next five years, they expect increases," he said.

Source:
Reuters
Mon Jul 23, 2007
By Mary Childs