High pump prices rattle drivers and businesses

The Associated Press
Monday, February 28, 2011; 9:12 AM

NEW YORK -- High fuel prices are putting the squeeze on drivers' wallets just as they are starting to feel better about the economy. They're also forcing tough choices on small-business owners who are loathe to charge more for fear of losing cost-conscious customers.

Gasoline prices rose 4 percent last week to a national average of $3.29 per gallon. That's the highest level ever for this time of year, when prices are typically low. And with unrest in the Middle East and North Africa lifting the price of oil to the $100-a-barrel range, analysts say pump prices are likely headed higher.

Bryon Gongaware, an owner of The Floral Trunk and Gifts in White Bear Lake, Minn., didn't raise his $7 flower delivery charge when gas prices spiked in 2008, and he doesn't plan to do so this time, either.

"I don't think the economy is solid enough that you can be careless about raising prices," he said, standing among the flower clippings on the floor of the shop he has run for 21 years.

That means the extra costs that come from driving the store's delivery van 70,000 miles a year come from only one place: "right out of the bottom line," he said.

For drivers such as Robert Wagner, 51, a high school teacher from Thornton, Colo., the higher fuel costs mean cutting back on movies and dinners out for him, his wife and their two children. "We're very, very frugal right now," he said as he trickled enough $3.09-per-gallon gasoline into his Chevrolet Suburban to get him to his next pay day.

Analysts and economists worry that by lowering profits for businesses and reducing disposable income for drivers, high gasoline prices could slow the recovering economy.

Over a year, analysts estimate, oil at $100 a barrel would reduce U.S. economic growth by 0.2 or 0.3 of a percentage point. Rather than grow an estimated 3.7 percent this year, the economy would expand 3.4 percent or 3.5 percent. That would likely mean less hiring and higher unemployment.

Americans are less prepared to absorb the spike in gasoline prices than they were the last time prices rose this high, in 2008, because unemployment is higher and real estate values are lower, says David Portalatin, an analyst for the market research firm NPD Group.

It has been four months since gasoline rose beyond $3 per gallon. During that time, drivers have spent $14 billion more on gasoline than they did a year ago, Portalatin says.

Diane Swonk, chief economist at Mesirow Financial in Chicago, says this year's cut in payroll taxes offers consumers a buffer against higher fuel prices. Still, she expects all but the wealthiest Americans to cut back on discretionary spending. And the longer prices stay high, the more damage they do.

Gasoline prices rose throughout last fall as the developing nations of Asia and the recovering economies of the West began using more oil.

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