Consumers are spending more on gas and less on everything else, causing fear among business owners as the summer travel and shopping seasons get under way.
With average gas prices hitting a record-high $3.21 per gallon this week, consumers say they're expecting to take fewer shopping trips, shop closer to home, or look for bigger sales and discounts to offset higher travel costs, according to a survey released last week by the National Retail Federation.
Of more than 8,000 consumers polled nationwide, 74.2 percent said rising gas prices of have already altered their spending habits -- including spending less time behind the wheel, cutting short summer vacation plans, and eating more meals at home, among other adjustments.
Among those that haven't been kept from the shopping malls, 24.1 percent reported spending less on clothing and 20.1 percent on cars, televisions, and furniture, the survey found.
"Consumers are entering the summer season with a cautious view of increasing gas prices," Tracy Mullin, the trade group's president, said in a statement. "To offset the effects of higher prices, more consumers are giving their wallets a little extra cushion by cutting back on discretionary spending or choosing to frequent retailers closer to home."
Most consumers are expecting gas prices to continue climbing, reaching $3.32 per gallon by Father's Day, the survey found.
Whether or not prices get that high, it's unlikely they'll dip below $3 before the end of the summer, according to the Energy Information Administration.
As the result of lower import levels and domestic refinery outages, U.S. gas inventories dropped by 34 million barrels, or 15 percent, over 12 consecutive weeks in February, March, and April -- the sharpest decline in the agency's recorded history -- forcing up retail prices to bridge the gap between supply and demand, the agency reported last week.
As of last week, average gas prices per gallon were 15.6 cents higher than during the same period last year. Increases were reported in every region. Prices in California were the highest in the nation, at $3.45 per gallon.
Typically, there's a 12-week lag between lower wholesale gas prices and prices charged by most retailers, according to the Association of Convenience & Petroleum Retailing, an Alexandria, Va.-based trade group.
Of the 168,000 gas stations throughout the United States, 52 percent are operated by business owners under contract with a brand name and 43 percent are operated by independent business owners, the trade group said. Just 5 percent are owned by major oil companies.
And while higher gas prices have boosted overall retail sales for gas station and convenience store owners, they're also cutting into profits. When supplies are low, gas station owners typically absorb higher wholesale gas prices to stay competitive. From 2000 to 2004, when average gas prices were $1.53 per gallon, the retailer markup on gas prices averaged 12.9 percent, the trade group said. By 2005, gas prices had soared to $2.27 per gallon, while the average retail markup shrank to just 6.9 percent.