PRINT THIS STORY:

CHANGE TEXT SIZE:

High gas prices skew retail picture

Census Bureau says sales are up, but same-store numbers show a decline

By Michael Baker

According to the broadest index of the U.S. retail industry’s health — the Census Bureau’s Monthly Retail Trade Survey — retailers as a group have consistently turned in year-over-year percent sales gains in the high-single or low-double digits through the first half of 2000. Meanwhile, same-store sales indices, which focus on the results of the largest retail chains, have shown a weakening trend since the first quarter. One of the principal reasons for the recent divergence between the Census Bureau’s numbers and the same-store reports is that the latter don’t include gasoline stations. In fact, ICSC calculated that 20% of the increase in retail sales in the second quarter of 2000 was attributable to gasoline. We wondered to what extent increased spending on gasoline was milking consumer dollars away from other places — like shopping centers. The increase in gasoline prices at the pump over the course of the past year has come as such a profound shock to the pocketbooks of some that for a while it threatened to become a presidential election issue. Officials from the U.S. Department of Energy and Environmental Protection Agency were dispatched from Washington to harangue oil companies for alleged price gouging; the Secretary of Energy made a trip to the Middle East to harangue major oil producers into increasing production.

When all is said and done, the price of gasoline in the United States is almost exclusively dependent on the balance of supply and demand in international crude oil markets — over the course of 1999, this balance shifted toward a steady increase as exporters cut production and the Asian economic recovery stimulated demand. The resulting trajectory in gasoline prices — from a low point of $1.01 per gallon in February 1999 to $1.63 in June 2000 — is shown in Figure 1.

It’s not hard to see how a gasoline price increase of that magnitude might have a discernible impact on the distribution of retail sales. During the 16-month period from February 1999 to June 2000, gasoline sales went from 7.6% of nonauto retail sales to 9.7% — that’s a 2.1% gain in the share of a pie that totaled $2.25 trillion dollars last year. Despite the price increase of roughly 60% in that time, we estimate that consumers actually increased their overall consumption of gasoline from about 11.8 billion gallons to some 12.0 billion gallons.

The top line in Figure 2 shows the actual monthly dollar volume of gasoline sales for the 16-month period. The lower line shows the estimated volume of monthly sales, assuming the actual number of gallons of gasoline purchased but at the February 1999 price rather than the actual price. The wedge between the top and bottom lines comes to a cumulative total of $66 billion — not a trivial sum of money to come out of consumers’ pockets. No doubt it’s money that they would gladly have spent on other things.

Of course, it isn’t possible to calculate exactly the amount of bite that rising gasoline prices have put on consumers — although we have observed how much gasoline consumers actually purchased over the time period in question, we don’t know how much they would have purchased if the price had remained the same. Chances are, they would have purchased more if the lower price had been sustained, thus causing the lower line in Figure 2 to rise slightly and decrease the size of the wedge. However, gasoline is not a marginal item that U.S. consumers easily dispense with if the price gets too steep — in the short-term at least, they will resist consuming less and pay the price, even if it means that purchases of other items have to fall by the wayside. For example, the market research firm NPD Group reported in July that during the first five months of 2000, the primary driver in the typical U.S. household purchased roughly the same quantity of gasoline as in the first five months of 1999.

If that’s true, then $66 billion is not a bad estimate of the extra cash that U.S. consumers ponied up to oil producers at the gasoline pumps through June.