Thursday, June 21, 2018
Business

Will $4 gas put a deep dent in our thin economic recovery?

Four years ago, Tampa Bay gas prices hovered in the mid $3.60s and peaked at a modern record of $4.009 on July 16, 2008, amid great anxiety over a troubled U.S. economy.

Today, Tampa Bay prices again hover near the mid $3.60s while most analysts forecast gas will top $4 this summer. A few warn of $5 or more at the pump in higher-priced parts of the country.

Nobody's happy with rising gas prices. But this time the masses are not hitting the panic button as they did in 2008. What's different now is the general direction of the economy.

When gas peaked in July 2008, Wall Street was already starting to tank. Lehman Brothers declared bankruptcy early that fall while the Dow fell off a cliff, dropping from almost 13,000 in the spring of 2008 to nearly 6,600 by March 2009. Unemployment was rising fast.

Now the Dow once again flirts with 13,000. Tampa Bay unemployment is down to 10 percent, still high but better than jobless rates in the upper 12 percent range of two years ago.

Optimism about the national economy, which sagged in 2011, is rebounding in the first two months of this year, say both a new Pew poll and a separate Gallup survey out last week.

None of this makes it a joy to pay $60 or $75 to fill up your car's tank. We'd be foolish to think high gas prices are not a danger to the economy's delicate job recovery. Some economists, like Ball State's Michael Hicks in Indiana, warn that job creation can stall if gas prices hit the upper range of projections.

New Middle East jitters do not help. Saber rattling from Iran, including threats to cut off oil deliveries to some European countries, as well as buzz of Israel mulling an attack on Tehran's nuclear facilities are also being factored into gas price predictions.

Veteran gas market watcher Tom Kloza of Oil Price Information Service says one reason higher gas prices may take a smaller bite out of the economy this time around is because Americans are driving less. About a year ago, we consumed 370 million gallons a day. Now that's down to 344 million gallons, a sharp 7 percent drop in a short period of time.

Gas consumption has not been this low since November 2003, a signal to some market watchers that the economy is slowing. With demand down, so is the supply of gasoline, with several U.S. refineries halting operations in recent months.

Kloza attributes the drop in gas consumption to four trends: people doing more of their shopping in fewer trips to big box stores; a conscious national cutback on discretionary travel; better mileage from newer vehicles; and what he calls "understated" unemployment numbers that include people now working part time.

In Florida, I'd say Kloza is definitely on to something. Florida's jobless rate is dropping but a recent Tampa Bay Times analysis found that new jobs now being created in this state pay an average of 25 percent less than the jobs that have gone away. That's a huge drop in discretionary income and sure to dampen Floridians' interest in driving as freely as they might have in the past.

In Pasco County, auto dealer Tom Castriota of Hudson-based Castriota Chevrolet says his customers show strong interest in the smaller Sonic and Cruze models priced under $20,000 that can reach as high as 40 miles per gallon. (The federal government wants to reach a goal of 54.5 miles per gallon by 2025.)

Castriota also sees more trade-ins of vehicles that have racked up close to 200,000 miles or even more, which, he says, "is really unusual."

Gas prices will drop, he says, but he can't predict when. "The day of $2 gas is not in the near future."

Scott Fink, whose New Port Richey Hyundai dealership sells more vehicles than any other dealer of any brand in the Tampa Bay area, thinks "we will be all right" as long as gas prices do not go higher than $4 and change.

"More than that and I think consumers will be forced to pull back on their purchases," he says. "It is tough now, and adding expense to the average consumer will just make matters worse."

Despite more optimism in 2012, this past month was the most costly January ever for gas. And 2011, overall, was the priciest year ever.

Amid such warning signs, one thing is for sure. If we soar past $4 at the Florida pump, we'll be hearing a lot more about the impact of gas prices on the delicate economy during the presidential race leading up to the November election.

Robert Trigaux can be reached at [email protected]

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