The price at the pump continues to rise, and Americans have noticed. Although the government's retail sales numbers for March aren't out until Wednesday, MasterCard's SpendingPulse retail report shows that gasoline sales took a hit last month. Considering how much prices have risen recently this isn't terribly surprising. If gas sales continue to fall, however, their decline will reverberate across the economy and could slow down the recovery.
The SpendingPulse report indicates that other retail spending continued to grow in March. That makes the decline in gasoline sales stick out, but does it also indicate that other spending will endure? Not necessarily. A decline in broader spending would naturally lag a drop in gasoline sales. Here's Michael McNamara, Vice President of Research and Analysis for MasterCard Advisors SpendingPulse, explaining (from the press release):
Mr. McNamara also observes that gasoline prices remain a concern as the average price continues to be above $3.50 a gallon. "Compared to March 2010, we're seeing drivers pump less gasoline," he notes. "Based on what we've observed in the last three to four years, high gasoline prices typically result in consumers consolidating shopping trips, shopping closer to home, and making fewer trips to the brick and mortar locations as we get to Saturday. On the other hand, we've seen the e-Commerce channel benefiting somewhat from this trend."
The problem of falling gas sales is different from the general problem of Americans having less money in their pockets when they're spending more on higher-priced gasoline. If people drive fewer miles, then less spending necessarily follows. This will manifest itself in several ways.
McNamara points out this one above. If you need to cut down on driving, then those non-essential trips to the mall or other shops won't occur. That means the discretionary spending of most consumers will drop. If consumer consolidate shopping into fewer trips, then they need to buy more necessary items in a single trip. This will also probably cut down on impulse shopping, as consumers will feel that they're already spending a lot of money on those less frequent trips.
On one hand online shopping may pick up some of the slack left behind by brick-and-mortar shopping, as McNamara points out. But this may only occur to a certain point. As gas prices increase, shipping prices also must rise. That will make online shopping more expensive, which will deter some people from opting for this alternative. So online shopping might rise a little, but probably not enough to overcome lost sales from brick-and-mortar retailers. Impulse shopping will also likely decline through more online shopping, since non-essential items catch your eye more easily in-person.
When gas becomes more expensive, eating out becomes more expensive too. As a result, people will buy more groceries during their regularly-scheduled trip to the supermarket and cook more often for themselves instead. Take-out delivery might increase a little, but such generally faster-food options are also relatively less expensive than sit-down establishments. These factors should cut overall restaurant spending.
Finally, those weekend out-of-town trips by car have become significantly more expensive over the past few months. Gas prices jumped by 30% in the past year, which means that the cost of transportation on road trips also increased by the same amount. High-priced gasoline has already begun hitting airline fares as well. Consumers worried about expenses may have no choice but to put off or cut out some vacationing.
As spending declines in all of these ways, companies will sense a drop in consumer demand. If that pushes down their sales expectations, then hiring will be relatively weaker than it would have been if gas prices had remained relatively low. This won't necessarily push the U.S. economy into double-dip territory, but it will slow down the recovery.