Rising Gas Prices Impair Consumer Spending

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Rising Gas Prices Impair Consumer Spending

SCHAUMBURG, Ill. -- Half of U.S. consumers, or 49 percent, have reduced spending to compensate for rising gas prices, up four points from June 2007, according to a new study by the Nielsen Co., parent company to Convenience Store News.

In addition, 70 percent of consumers reported they battle high gas prices by combining shopping trips and errands, while 41 percent reported they eat out less and 39 percent reported they stay home more often, according to the study.

"Our research shows consumers are adjusting their spending to a significant degree to counterbalance rising gas prices," Todd Hale, senior vice president of consumer shopping and insights for Nielsen Consumer Panel Services, said in a statement. "Large numbers of consumers eating out less and staying home more often signal a tough year for some restaurants, but there may be an opportunity for consumer packaged goods (CPG) manufacturers and retailers to find continued growth in healthy, at-home meal solutions and at-work meals."

Further, high gas prices are affecting the places where consumers shop, according to the study, which found that 27 percent of consumers reacted to higher gas prices by shopping more at supercenters, megastores and big-box stores, where more of consumers' needed items are in one location, the report stated.

High gas prices have also resulted in more coupon clipping, with 25 percent of consumers using coupons to save money, compared to 20 percent in June 2007, the study found.

In addition, 23 percent of consumers indicate they will buy less expensive grocery brands to deal with higher gas prices, indicating an opportunity for private label or store-brand products and lower-priced branded products, the report stated.

"2008 will likely be a challenging year for U.S. consumers and the economy as a whole as we grapple with growing inflation, credit card debt, declining house values -- as well as expectations for gasoline to hit $3.40 by spring," said Hale. "Manufacturers and retailers need to be alert to the fact that consumers are looking to save by altering where they shop, how they shop and what products and brands they buy. Value, convenience and competitive pricing will be more important than ever in the year ahead."

Currently, the average price for a gallon of self-serve, regular gasoline in the U.S. stands at $3.07, nearly a 10 cent increase in the past two weeks, due to high crude oil prices, Reuters reported, citing the most recent Lundberg study.

"The reason for nearly a dime increase in retail gasoline is mostly caused by the higher crude oil prices earlier this month and some increases in profit margins of both refiners and gasoline retailers," survey editor Trilby Lundberg told Reuters. "Also, gasoline demand is very weak anyway because of the high prices in 2007."

The current national average is still below the all-time high of more than $3.18 seen on May 18, 2007, but more than 75 cents higher than the year-ago price, according to the report.

However, the price hike is not likely to continue its upward trend in the immediate future, as "these are the doldrums in seasonal gasoline demand," Lundberg told Reuters.

Low demand for gas in January almost always suppresses price increases, according to Lundberg. "It would take crude oil prices rising well above the current $92.69 [a barrel] to move gasoline prices up significantly from here," she said.

At $3.39 a gallon, San Francisco had the highest average price for gas, while the lowest price was $2.77 a gallon in Cheyenne, Wyo., according to the report.

Meanwhile, the Conference Board Measure of CEO Confidence painted a bleak picture for the near future, as its confidence indicator fell to 39 points in the final quarter of 2007, after falling in the third quarter to 44 points, the Conference Board Consumer Research Center reported. A reading of more than 50 points reflects more positive than negative responses.

The last time the indicator fell below 40 was in the final quarter of 2000, when it fell to 31, according to the organization.

"CEOs' confidence in the state of the U.S. economy continues to wither and is now at a seven-year low," Lynn Franco, director of the Conference Board Consumer Research Center, said in a statement. "Given continued trouble in the housing and credit markets, persistent volatility in financial markets and increases in energy prices, it's not surprising that confidence has eroded.

"Looking ahead, the majority of business leaders expect these lackluster economic conditions to prevail throughout the first half of 2008."  
The study also found that 16 percent of CEOs expect economic conditions to improve in the next six months, a decline from the 20 percent from the third quarter of 2007, according to the organization.