- The Washington Times - Monday, June 14, 2004

Record high gas prices are propelling consumer spending and the trade deficit higher, but so far have not stopped Americans from buying gas-guzzling cars and SUVs, according to economic reports out yesterday.

The value of gasoline sales rose 4 percent last month, driven by prices averaging more than $2 a gallon at the pump. Auto sales spurted by 2.7 percent as dealers offered deep discounts to prop up sales of popular sport-utility-vehicle and light-truck models, the Commerce Department reported.

Together, the strong car-related spending spurred a solid 1.2 percent increase in retail sales to a seasonally adjusted $335.8 billion on the eve of the summer driving season.

“Rising gas prices are taking a back seat to incentives,” said Edward Yardeni, chief investment strategist with Prudential Equity Group. U.S. incentives, including rebates and no-interest loans, which have been standard fare at auto dealers since 2001, last month rose to $5,185 per vehicle.

Mr. Yardeni expects auto sales and consumer spending to remain solid this year despite the drag from high gas prices, because a revival of growth in jobs and incomes is increasing consumers’ wherewithal to spend.

American automakers sell more gas-devouring SUVs and trucks than fuel-efficient cars, and that continued last month, when sales of the heavier vehicles jumped nearly a million to an 8.6 million annual rate, while car sales rose half that much.

Signs are that Detroit’s manufacturers built up large inventories of heavy models this spring in the hope that sizable tax refunds due many taxpayers would boost sales. The higher sales did not materialize in April, so they rolled out incentives in May and offered particularly deep discounts on SUVs.

But America’s love affair with the car also is boosting sales of imports, which tend to be more efficient at using gas than American-made vehicles.

Auto imports rose to a record $19 billion in April, helping to push the U.S. trade deficit with the rest of the world to an all-time high of $48.3 billion, the department said.

Purchase of crude oil also drove up the deficit. Premium crude oil reached a record of over $40 a barrel in New York trading during the month.

Economists see some evidence that stepped up spending on cars and gas is cutting into spending on other things, such as eating out.

Spending on discretionary items like dining out, sports and hobbies has declined in recent months.

Last month, sales outside of autos and gas were relatively weak, increasing by 0.3 percent after dropping 0.1 percent in April.

“Energy prices are eating into consumers’ real disposable income,” and are acting as a head wind against the economic recovery, said Greg Valliere, chief strategist with Schwab Washington Research Group.

Cory Lipoff, executive vice president of Hilco Merchant Resources, a retail business adviser, said he is concerned high gas prices will curb other consumer purchases during the summer vacation season.

Retailers that cater to low-income consumers could be particularly hard hit, he said.

But Gary Thayer, chief economist at A.G. Edwards & Sons, said a 1.3 percent rise in general merchandise sales in May “suggests that high gasoline prices may not be discouraging a lot of shoppers.”

Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.


Click to Read More and View Comments

Click to Hide