Rent-to-own News - Gas prices tamp consumer spending

Gasoline prices are soaring past $4 a gallon in many places and driving will continue to be more expensive. Economists say unless consumers are determined to again recklessly pile up credit card debt, higher gas prices will profoundly slow other purchases and the economic recovery.

Over a three-year period, most folks don't have much control over how much they spend on rent and mortgage payments, utilities, tuition and food, or how much they drive. Gasoline absorbs 15 percent or more of most household budgets and the necessity of getting to work and driving kids to soccer practice doesn't relent when gas prices jump.

With gas prices up from $2.75 a gallon since last September, higher prices translate into a 5 percent cut in discretionary income and Americans will be eating fewer restaurant meals, wearing fewer new clothes, curtailing summer vacation plans and postponing furniture purchases and home improvements.

As most money paid for higher-priced gasoline leaves the country to pay for more expensive imported oil and doesn't return to buy U.S. exports, this shift in consumer spending reduces demand for what Americans make and slows economic recovery.

U.S. gross domestic product was up 3.1 percent in the fourth quarter of 2010 and employers are hiring again -- unemployment may not be as low as we would like but it is coming down.

But for the first quarter of 2011, economic forecasters have lowered estimated growth to 2.7 percent from 3.4 percent just a month ago and, if growth stays that subdued, 50,000 or more jobs will be lost each month on account of higher energy prices.

According to MasterCard SpendingPulse, which tracks spending at 140,000 gas stations across the nation, gas sales have dropped for five straight weeks. It was the first time a consistent drop had been seen for that long of a period since last November.

MasterCard’s report shows drivers bought 2.7 billion gallons of gas last week, down 3.6 percent from the same period in 2010, when it was 80 cents cheaper.

Some analysts predict the price at the pump could reach five dollars a gallon in the next few months.  While the AAA Auto Club South doesn’t think it will got that high, they say we could see record prices soon.

“We can expect gas prices to go the highest we ever seen gas prices, in the range of $4.20, $4:25 or $4.30 per gallon,” said AAA Auto South spokesman Juan Rivera.

Mike Myers fixes windows for a living, many of his jobs are on boats.  Myers said the price of gas affects more than just how much it takes to keep his four repair trucks on the road.

“Gas prices right now are crushing the guys in the mid to small boat range. People can’t go fishing and what do you do in Florida,” said Myers.  “If the guys don’t use their boats, we don’t fix  them.”
Americans also appear to be turning to smaller, more fuel-efficient cars to save on gas. Sales of the Hyundai Sonata and Elantra soared 55 percent in March. Meanwhile, sales of Chevy’s Suburban SUV dropped nearly 24 percent.

Airlines will begin to hike airplane ticket prices shortly. If gas reaches $5 a gallon as some analysts are predicting, the rise in airline prices will likely be dramatic. Also, cruise lines will also have to begin to raise prices to meet higher fuel costs.

With fewer people flying and/or driving, hospitality industries in South Florida will struggle. And as unrest in North Africa and the Middle East allow speculators to drive oil prices through the roof; the problem will only continue to be exacerbated.

For drivers in South Florida, and across the country, high gas prices is going to make the need to carpool, combine trips, or simply give up some things a grim reality. And with public transportation in South Florida, severely lacking, some workers will have to face the reality of if it’s too expensive to get to a job.

But, a drop in tourism runs a major risk to the coffers of South Florida cities and counties. Tourism brings in major revenue to help pay for things like the new Marlins Stadium. If the revenue drops, the money will still be owed and add to the possibility of major deficits.

And just because you drive a fuel-efficient car, don’t think you will get away from the rise in gas prices unscathed.

Many businesses are starting to hike prices in the store, and especially for delivery. The U.S. Post Office has started running ads that say while others are raising prices, they will charge their current price for delivery.

If U.S. demand drops, even dramatically, it likely won’t impact gas prices. Global demand is expected to continue to rise, which will only further increase speculation on higher prices in the future.
The rise in gas prices also sets up a showdown between Democrats and Republicans.

President Barack Obama and Democrats have proposed more fuel-efficient standards, high-speed rails, getting rid of oil subsidies, among other things to help with the fuel crisis.

Republicans have pushed back against raising fuel standards saying it will hurt the current recovery. Their plans include reducing business taxes to help fuel the recovery.

The GOP has also fought high-speed rail lines, most notably Florida Governor Rick Scott’s questionable decision to give the federal government $2.4 billion back that had been earmarked for a high-speed rail line in Florida.

Democrats will portray their opponents as fighting a move towards more energy independence and saving money on gasoline. Republicans will counter saying that the Democrats plans will cost too much and negatively impact job creation.

All the while, industries in South Florida, and across the nation, will be left trying to figure out how to price goods to sell, while meeting the rising costs of delivery.

And consumers will be left trying to figure out how to meet their rising gas costs and sustain their overall spending to help keep the recovery going.