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According to Salomon Smith Barney, of the roughly $37,000 median U.S. family income after taxes, $4,000 to $5,000 goes toward energy costs, including filling up cars plus heating and lighting homes. Accordingly, a 75 percent year-over-year rise in oil prices and a "severe upward spike" in natural gas prices could have a $4,000 to $5,000 impact on consumer discretionary spending, annually.
The firm also estimates that the rise of just 1 cent in the price of gasoline represents about $1 billion in lost consumer expenditures.
"The ‘shock’ of higher oil prices in the near-term is likely to cause short-term disruptions in spending," said SSB analyst Deborah Weinswig, in a research note. "While a regression of same-store sales at retailers to the absolute level of fuel prices failed to show a significant relationship due to ‘noise’ such as weather and national events, we believe that the impact is being felt at most retailers."
Lazard Frères & Co. equity analyst Todd Slater agreed that rising fuel prices would take a bite out of the consumer’s discretionary spending. "People still need to buy daily consumables, but as gas takes up a bigger portion of one’s wallet share, it’s at the expense of discretionary purchases like apparel," he said.
In an environment where energy costs are rising, he said, discounters will continue to lean on their value proposition and take a greater chunk of the overall retail pie as consumers trade down. Meanwhile, he added, higher-end malls, with a higher percentage of discretionary products, will be hurt by increased fuel prices.
On the plus side, though, Slater described the ascent of fuel prices as "less of a long-term issue than a temporary manifestation of current events." Historically, gas prices have been far more volatile than apparel prices, rising at greater rates. According to the U.S. Department of Labor’s Bureau of Labor Statistics, from 1972 to 2002, the seasonally adjusted average price of all types of gasoline for all urban consumers has soared 308.5 percent. Over that same period, the seasonally adjusted average price of all apparel for the same consumers grew 99 percent. More recently, as of January 2003, gas prices were 6.8 percent higher than in January 2001, while apparel prices were 1 percent lower. Jessica Walker, economist at Moody’s Investor Service, noted that from January to February, premium gasoline prices increased 13.8 percent, the greatest increase since April 2002. From December through January, prices were up 7.8 percent.