Rising Gas Prices Threaten Retail Recovery
by Doug Desjardins
Just when retail sales were showing their first sustained increase in more than two years, a sudden spike in the price of gas threatens to slow the momentum.
Political unrest in North Africa and the temporary shutdown of oil shipments out of Libya sent gas prices soaring in the last week of February. From Feb. 21 to Feb. 28, the average price per gallon jumped 17 cents to $3.29, marking the largest one-week gain since 2008, according to the American Automobile Association.
That sharp increase is expected to subside in March, but the steady rise in gas prices this year will have an impact on consumer spending that may continue into the spring.
“Rising prices imparted a strong bite on real consumer spending,” said John Hermann, a strategist at State Street Global Markets in Boston. “Acceleration in consumption and the economy may become more of a challenge.”
High gas prices impact consumers in a number of ways. Shoppers in rural areas who drive a long distance to shop tend to consolidate their shopping trips, leading to fewer trips and fewer impulse buys. For others, it’s simply a matter of having less money to spend as more money goes into their gas tank.
“When you’re pumping in $50 to $75 to fill up your car, depending on what you drive, it’s a major hit for a lot of consumers,” said Retail Metrics president Ken Perkins. “We’re rapidly approaching that point.” 
Mass merchants like Wal-Mart and other retailers who appeal to lower-income shoppers are more likely to feel the effects first, since their shoppers tend to have less disposable income and are harder-hit by rising gas prices.
Analysts say it’s still too soon to gauge what impact rising gas prices will have on retail sales, since the increase in February was so sharp and sudden. Sales during the next few weeks of March should tell the story, especially if gas prices continue to rise and approach the $4 mark.
“We haven’t reached that point yet but it’s something to keep an eye on, especially as we approach the spring-break travel season,” said Mike Berry, director of industry research for Mastercard Spending Pulse. During the summer of 2008, when the average price for a gallon of gas topped $4 for six straight weeks, retail sales declined every week.
One area where gas prices are already making an impact is on auto sales. Ford Motors reported that sales of its smaller cars rose noticeably in January and February as consumers migrated to more fuel-efficient vehicles amid concerns about gas prices. And Toyota reported record February sales for its Prius hybrid.
Resources
Consumer Spending in U.S. Cooled in January as Gas Prices Climbed
COUPON TIME
With our great Free Shipping Deals, you won't have to use any gas to get fabulous sale prices!
