Gas prices top consumer worry, economists say

By Deborah Lee

NEW YORK (Reuters) - Between chewing sauce-slathered ribs and corn on the cob, the neighbors and relatives of Wall Street's top prognosticators had one thing on their mind this past Memorial Day: gasoline prices.

The 15 experts who spoke to the Reuters Investment Outlook Summit this week said prices in general were the top concern of their holiday picnic companions.

In an anecdotal survey during the Investment Outlook Summit, soaring food prices, falling house prices, and the fact a gallon of gasoline looks like it could cost $5 this summer made up Americans' biggest worries.

At a similar Reuters summit in June 2007, experts said house prices were making their fellow barbecuers fret the most. Soon after, the housing market began what has become its worst slump in decades.

"Because housing has blotted out the economic sun for the last 2 years, we were not paying as much attention to the energy crunch," said Lou Crandall, Chief Economist at Wrightson ICAP. "Now it's forcing itself on everyone's attention, the nation has noticed."

In total, the 15 speakers listed five top consumer anxieties, ranking gasoline prices at the top, house prices a close second, and inflation, the stock market, and employment in third place.

Deven Sharma, President of Standard & Poor's said the current economic malaise pervades the country. Few people are unaffected. "Everyone is concerned," he said. "Oil prices are up, inflation is up. It's a difficult time for everybody."

Even young Americans feel the economic crunch, said Abby Joseph Cohen, Global Markets Institute President and Senior Investment Strategist at Goldman Sachs.

"I was at my daughter's commencement over Memorial Day," she said. "Many of the students are graduating with debt and an uncertain job market. Clearly, there is that concern."

The experts at the Reuters summit agreed that as consumers feel the effects of the economic slowdown and come to grips with mounting gasoline prices, consumer behavior will begin to alter, but only slowly. David Bianco, head of U.S. Equity Strategy at UBS, said right now, there is just a looming fear that things are about to get worse economically.

"The improvement of the standard of living we've enjoyed for many years may be coming to an end or at least not improving at the rate we once were accustomed to," said Bob Sinche, Global Head of Foreign Exchange and Rate Strategy at Bank of America.

"You do have to wonder at what point prices begin to take hold. At what point do heating costs become a relevant decision in the determination of how big a house you have and how big a car you drive," Sinche added.

In fact, Tom Lee, chief U.S. Equities Strategies for JPMorgan & Co, recently witnessed a surprising change in consumer behavior.

"I saw one investment banker from a large bulge bracket firm show up in a Smart car," he said, suggesting that eye-popping gas prices are forcing social responsibility.

"Now look, these guys can easily afford to fill up whatever car they want to drive. The price has really made it clear that we're gobbling up our resources."

(For summit blog: summitnotebook.reuters.com/)