[Ok-sus] Rising gas prices crimping spending
bwaldrop1952 at att.net
Sun Sep 16 20:09:53 CDT 2012
One effect of the recent decision by the Fed to stimulate the economy
will be -- INCREASED FUEL PRICES! Yee haw! Aren't we all happy about that?
Bob Waldrop, OKC
The Enid News and Eagle, Enid, OK
September 15, 2012
Rising gas prices crimp Americans' spending
By Christopher S. Rugaber AP Economics Writer
WASHINGTON — Higher gas prices are crimping consumer spending and
slowing the already-weak U.S. economy. And they could get worse in the
The Federal Reserve this week took steps to boost economic growth. But
those stimulus measures are also pushing oil prices up. If gas prices
follow, consumers will have less money to spend elsewhere.
The impact of the Fed's actions "is likely to weigh on the value of the
U.S. dollar and lift commodity prices," said Joseph Carson, U.S.
economist at AllianceBernstein. "We would not be surprised if (it)
fueled more inflation in coming months, squeezing the real income of
Americans are already feeling pinched by high unemployment, slow wage
growth and higher gas prices.
Consumers increased their spending at retail businesses by 0.9 percent
in August, the Commerce Department reported Friday. But that was largely
because they paid more for gas. Excluding the impact of gas prices and a
sizeable increase in auto sales, retail sales rose just 0.1 percent.
Perhaps more telling is where Americans spent less. Consumers cut back
on clothing, electronics and at general merchandise outlets —
discretionary purchases that typically signal confidence in the economy.
Gas prices have risen more than 50 cents per gallon in the past two
months. The national average was $3.87 a gallon on Friday. Most of the
increase took place in August, which drove the biggest one-month
increase in overall consumer prices in three years, the Labor Department
said Friday in a separate report.
"Consumers were not willing to spend much at the mall since they are
feeling the pump price pinch," said Chris Christopher, an economist at
IHS Global Insight.
Weaker retail sales will likely weigh on growth in the July-September
quarter. Economists at Bank of America Merrill Lynch slashed their
third-quarter growth forecast to an annual rate of only 1.1 percent,
down from 1.5 percent. That's not nearly fast enough to spur more
hiring, which has languished since February.
The Fed is hoping to kick-start growth with a series of bold steps
announced Thursday that could make borrowing cheaper for years.
It plans to spend $40 billion a month to buy mortgage bonds to make home
buying more affordable. It also pledged to keep short-term interest
rates near zero through at least mid-2015.
And Fed Chairman Ben Bernanke said the Fed will continue its efforts —
and intensify them if necessary — until the job market improves
The announcement ignited a two-day stock market rally that sent the Dow
Jones industrial average to its highest level since December 2007, the
first month of the Great Recession.
But the Fed's actions also helped move oil prices briefly above $100 a
barrel Friday for the first time since May. They fell back slightly, but
were still up 74 cents to $99.04 a barrel in mid-afternoon trading.
Carson noted that the Fed's previous rounds of bond-buying pushed up
commodity prices and fueled greater inflation. That weakened the ability
of U.S. consumers to spend and likely slowed growth, he said.
He expects the same thing to happen again.
The Fed's moves can push up oil prices in several ways. The Fed creates
new money to pay for its mortgage bond purchases. That increases the
amount of dollars in circulation and can lower their value. Oil is
priced in dollars, so the price tends to rise when the dollar falls.
That's because it costs more for overseas investors to purchase dollars
to buy oil.
Lower interest rates also push investors out of safer assets, such as
bonds, and into riskier investments, such as oil, in hopes of a greater
return. And if the Fed's moves accelerate growth, that would increase
demand for oil and gas and also raise their prices.
Higher gas prices are eating up a bigger share of Americans' incomes
than in previous years. Spending at the pump accounts for 8.2 percent of
the typical family's household income, according to Fred Rozell of the
Oil Price Information Service. That's just below last year's 8.3 percent.
Those represent the biggest slice of household income spent on gas since
1981. The typical household spends about $342 per month on gasoline.
Before gasoline prices began rising in 2004, households spent less than
$200 per month, Rozell said, under 5 percent of median income.
Average gas prices are higher this year than last year. But Americans
are using less by driving more fuel-efficient cars and driving less.
Meanwhile, average wages, adjusted for inflation, have been flat for the
past year, the Labor Department said Friday. That adds to the squeeze on
One silver lining is that weakness should eventually push prices back
down, economists note. That's because people cut back on oil and gas
consumption when prices rise.
"Unless the economic data rapidly improve, the gains in oil ... prices
are unlikely to be sustained," Julian Jessop, an analyst Capital
AP Energy Writer Jonathan Fahey contributed to this report from New York.
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