Gas prices cut into consumer spending

Although retail sales numbers increased last month for the tenth straight month, several details about that jump are giving economists pause. The increase was the smallest such rise in nine months, and was largely composed of spending at gasoline stations instead of at retail stores. This means that cash-strapped consumers are spending their money on necessities, such as gas, groceries, and house and car loans, rather than luxuries like clothing, household furnishings, and appliances or other big-ticket items.

According to federal data from the United States Department of Commerce, retail sales increased by 0.5 percent in April, less than the predicted increase of 0.6 percent. When gasoline receipts are removed from the tally, however, retail sales only increased by 0.2 percent last month.

With the 24 cent per gallon increase in gas prices from March to April, it is not surprising that Americans are diverting their funds to fill up their gas tanks, instead of spending their money at the mall or the movie theater. In fact, Commerce Department reports show that Americans spent approximately $8 billion more at the gas pump in April than they did during the same month last year. The increase in gas prices comes at the same time as an unprecedented rise in food costs, stretching many household budgets even tighter than before.

However, this may change in the next few months. Gas prices are expected to fall significantly in the coming weeks, which economists hope will alleviate some of the pressure on families in Georgia and throughout the country. Because consumer spending accounts for nearly 70 percent of economic activity in the country, a reduction in gas prices is expected to play a significant role in economic recovery.

Source: Reuters, “Gasoline prices pinch consumers in April“, Lucia Mutikani, 12 May 2011