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Fueled by mild winter, consumers save enough cash to fill up the tank
It’s not making headlines, but this year’s unusually mild weather and low home-heating costs substantially offset the pinch from fast-rising gasoline prices and underpinned the revival of consumer spending.
The windfall from declining heating costs, which saved typical families hundreds of dollars this winter, is one reason economists are not too concerned that an expected temporary spike in average gasoline prices to as high as $4.25 a gallon by summer will deliver a fatal blow to consumer optimism or the economic expansion.
“While consumers are definitely paying more at the pump, many consumers are benefiting from the lowest winter heating bills in years” because of the fourth- warmest winter on record in the U.S. and the lowest natural gas prices in at least a decade, said Michael Thompson, managing director at Standard & Poor’s Corp.
The majority of U.S. homes are heated with natural gas, where prices have been plummeting while oil prices were rising, thanks to the drop in demand for heat this winter and new extraction techniques that have produced a surplus of gas from shale rock formations.
This has left consumers with more financial cushion against the shock of rapidly rising pump prices, Mr. Thompson said. Nationwide, the average price for a gallon of regular gas last week hit $3.84, a record for this time of year, AAA reported, and the price is expected to keep rising through Memorial Day as refineries prepare the more expensive super-refined gasoline blends required during the peak summer driving season.
Gas prices in the Washington area, at $4.08 on average, are substantially higher than the national average, having already exceeded the $4 threshold as they have in other major cities on the East and West coasts.
“Consumers are not showing any noticeable sign of vulnerability” so far, and are not forgoing discretionary purchases because they’ve had to pay more for gas, Mr. Thompson said, although that could happen if prices keep escalating.
In fact, rather than capitulate to high gas prices, consumers went on a shopping spree, pushing retail sales to all-time highs in January and February.
With gasoline purchases accounting for only about 5 percent of all consumer spending in the U.S., Mr. Thompson said, it would take a much bigger spike in prices - to about $5 a gallon - to shake consumers and threaten the economy.
Jerry Webman, chief economist with Oppenheimer Funds, also is impressed with consumers’ resilience in the face of high pump prices.
“Though consumers may be nervous about gas prices, they’re still finding a way to get to the mall” and spend on clothing, sporting goods and myriad other items, he said. “Mild weather has no doubt been helping.”
But the outlook could “turn gloomy,” he said. “Particularly for middle- and lower-income shoppers, pricier gas could yet put a dent in spending,” he said. “I’d consider fuel costs to be today’s most serious threat to the ongoing U.S. economic expansion.”
While analysts expect pump prices to flirt with new highs of more than $4 nationwide by Memorial Day, most do not expect a major spike to $5 unless war breaks out in the Middle East over Iran’s nuclear ambitions. S&P and other major forecasters generally put the odds of that happening at less than 1 in 5.
Still, few would underestimate the powerful psychological effects of the gas spike. Motor fuel prices arguably are the most visible prices in the consumer universe because they are posted in bold numerals. Moreover, widespread discontent with the surge in gas prices this year has been fanned by political campaigners and chronicled breathlessly by the media.
“Americans are feeling the pump price pinch. Rising or falling gasoline prices have a large influence on consumer” thinking, said Chris G. Christopher, an economist at IHS Global Insight. He noted that high gas prices are dampening a recent revival of consumer confidence and raising worries about inflation.
© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.
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