Oil prices may be up, but U.S. drivers aren’t cutting
WASHINGTON/NEW YORK (Reuters) - As gasoline prices soared in February, Americans bought big pick-up trucks.
For all the talk about $100-a-barrel oil snuffing out the economic recovery like similar spikes did in decades past, it has so far inspired only modest changes in U.S. consumer behavior and attitudes.
Part of that reflects psychology. Although gasoline prices in late February recorded their biggest weekly gain since Hurricane Katrina disrupted petroleum supplies in 2005, they are still well below the $4-a-gallon levels hit during a 2008 price spike.
"We've been at $4 before -- it wasn't for very long, but we have hit that number," said Nigel Gault, chief U.S. economist with IHS Global Insight in Lexington, Massachusetts. "Round numbers do still matter, $4 does still have shock value. Does it have the same shock value this time around as it did in 2008? It probably doesn't."
The broader economy is less oil-dependent than it was in the 1970s and 1980s, when expensive oil triggered recessions. Even those big Ford F-series pick-up trucks -- far and away the best-selling vehicles so far this year -- are more fuel efficient than earlier models.
Ask people how they are coping with costlier energy and you get a wide range of responses.
Take Jackie Dooley, an Internet marketing consultant in Eddyville, New York. Two years ago, she installed a super high-efficient pellet stove to heat her home, and she raises chickens and grows vegetables to offset rising food costs.
"We definitely couldn't manage it if we were still paying so much for oil," she said, adding that the money she saves goes to "luxury items" like paying health insurance premiums.
Then there is Stephen Mielach, a social worker in Toms River, New Jersey, who said he was annoyed by "all the global warming, energy crisis garbage" and did not want to be told what to buy.
"I buy what I like, especially when it comes to cars," he said.
For Stephen Taddie, managing member of investment advisory firm Stellar Capital Management in Phoenix, steep energy prices drove him to install solar panels on his home, buy energy efficient appliances and replace fancy European cars with pump-friendlier Hondas.
He already sees signs of oil feeding into consumer costs and worries about how spending will hold up if prices stay too high for too long.
"Price any airline tickets lately?" he asked, referring to a recent rash of fare increases.
TRUCK OR PRIUS?
Economic data suggests few consumers are making the sort of dramatic lifestyle changes that Dooley has, which means $100 oil will have little immediate or noticeable impact in a $14 trillion economy.
Retail chains reported surprisingly strong sales for February, although there was some evidence that oil was subtly affecting shopping behavior. Warehouse club chains Costco Wholesale Corp and BJ's Wholesale Club Inc, lured more shoppers with cheaper gas prices.
As for those Ford trucks, sales are up 21 percent so far this year, and overall truck sales far outpaced car sales in February.
Some of that reflects pent-up demand after two years of recession-sapped sales. Those big trucks are popular among small-business owners such as contractors, who simply cannot run a roofing business out of a small Toyota Prius.
Judging from futures markets, investors see little risk that oil will spike as sharply as it did in 2008, when it briefly approached $150 a barrel. On the New York Mercantile Exchange, the price for August delivery was just $2.60 above the April contract, suggesting investors think oil won't move much above $100 in the next five months.
To be sure, $100 oil is not completely painless. The average gasoline price rose by nearly 20 cents a gallon to $3.38 in late February, and that undercuts other consumer spending.
Deutsche Bank economist Peter Hooper said most of the rise in oil prices in the past six months reflects growing global demand. Roughly $10 to $15 a barrel can be tied to concerns about possible oil supply disruptions from unrest in Libya and the Middle East.
If prices stay around $110 per barrel, Hooper estimated it would trim 0.35 percentage point off of U.S. economic output, a moderate hit considering economists expect growth in the 3.4 percent range this year.
Hooper put only a 10 to 15 percent probability on oil hitting $150 a barrel, but if that does happen it would take 1.75 percentage points off U.S. growth -- enough to push the economy back toward stall speed.
The economy's ability to withstand $100 oil at all speaks volumes about how it has evolved in the past 30 years. In 2010, energy accounted for about 5.6 percent of total consumer spending. In 1981, it ate up 9.1 percent of spending, according to Commerce Department data.
Gasoline makes up about 55 percent of that energy spending, with the rest going primarily to utilities.
Gault, the Global Insight economist, said back in 1973 when a series of oil shocks caused catastrophic economic damage, the United States consumed 17 million barrels of oil per day. Today, that figure is 19 million barrels.
"Over that period, real GDP has almost trebled, and we're barely using more oil than we did back then," Gault said.
One big reason why oil consumption has not grown nearly as fast as the economy is that many businesses have switched to other fuel sources. In 1973, some 17 percent of electricity was generated from petroleum products, Gault said. Today, that figure is less than 1 percent.
That explains why $100 oil "hurts, but doesn't have the devastating impact that it did" in prior decades, Gault said.