Soaring energy prices bad news for the economy
The high cost of oil and gasoline could act as a tax on consumers and undercut the government's stimulus plan.
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But Fitzpatrick says the market is also being swayed by a number of small events, such as a small refinery fire in Texas, the continued sparring between Exxon-Mobil and Venezuela's president, and news reports that oil field violence is heating up again in Nigeria. "We're all scratching our heads," he says.Skip to next paragraph
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While oil traders are trying to understand the dynamics of their market, economists are worried about consumers as they watch oil prices tick up.
In Dayton, Ohio, people are doing less driving early in the week, when prices are higher (prices tend to come down later in the week), says Brad Proctor, founder of GasPriceWatch.com, which is based in Dayton. "People are adapting," he says.
Yet so far, consumers have shown some resilience. On Tuesday, Chicago-based ShopperTrak RCT reported that retail sales in February rose 5.9 percent for the week ending Feb. 16. For the month, it's running at about a 2 to 3 percent increase, says Bill Martin, co-founder of ShopperTrak.
"Call it moderate spending to this point, not too fast and not too slow," says Mr. Martin. "People are continuing to buy things that they need."
But the International Council of Shopping Centers is reaching different conclusions. On Wednesday, it reported no week-to-week increase in sales and it proclaimed in a press release that consumers were not in the mood to spend.
How much gasoline prices rise may have an effect on consumer confidence. "A change of 10 cents a gallon either up or down won't make much of a difference in confidence levels," says Lynn Franco, director of the Conference Board's Consumer Research Center in New York. "Following hurricane Katrina, some gasoline prices went up to $3.50 a gallon, and we had lines at gas stations. So there was much greater apprehension."
But Mr. Jacobe says his surveys are starting to show a sharp deterioration in consumer confidence. "It's down considerably from the first week of January," he says.
How high gasoline prices rise could well determine the effectiveness of Congress's attempt to stimulate the economy. In May, the first checks for $600 for individuals and $1,200 for couples (plus $300 per child) will hit mailboxes. Assuming that an average person drives 15,000 miles annually and gets about 17 miles per gallon, Martin estimates that his or her annual gasoline usage is 882 gallons. A rise of 11 cents a gallon would take about $97 out of his or her federal rebate check. A rise of $1 a gallon would take $882. "It is tenuous times we live in," Martin says.