High gas prices have been blamed off and on over the past year for slowing retail sales. Discounters, whose customers are hardest hit by high gas prices, have been reporting for the last year that high gas prices are changing consumer habits. In months hit by gas spikes, retailers often report firm sales of basics but soft sales of discretionary goods, such as deck furniture or new golf clubs. High gas prices are also making for fewer, less-spontaneous customer trips.
Last summer's gas spike punctuated by September's hurricanes coincided with a dip in retail sales as shown in the graph above. The ongoing recent gas spike is no doubt holding back the current rate of sales growth, which has never recovered to the pace of first half 2005.
Changing proportions
Higher gas prices result in higher dollar sales for gas stations. Higher prices do cut into demand for gasoline, as consumers cut back on shopping trips for instance. In fact, demand for gasoline in volume terms has been tracking at a minimal year-on-year growth rate of below 1 percent according to weekly energy data from the Energy Information Agency or EIA. But demand is less flexible than prices. When prices go up and down, sales go up and down. The graph below matches changes in gas prices with changes in gas station sales over the past 10 years.
Higher gas station sales have changed the composition of retail trade. The proportion of gas station sales to total sales has increased from 9 percent to 10 percent in the past year. A look back 10 years ago shows gas station sales, when gas cost under $1.30 a gallon, accounting for only 7.5 percent of total sales.
Stable is the best description for most categories, such as food & beverage stores or health & personal care stores which provide our essentials. But sales at motor vehicle & parts dealers have been on the slide, down in absolute dollars and accounting for 20.8 percent of total sales, down from more than 22 percent a year ago.
One group that has risen sharply, high gas prices or not, is building & garden equipment stores, reflecting last year's peak in the housing sector and now making up about 8.5 percent of total sales compared with under 8.0 percent this time last year. But the furniture and home furnishing group never benefited from the housing boom, now at 5.1 percent and at the low end of a long-term narrow trend.
Non-store retailers, especially web retailers also have been benefiting from high gas prices. Many web retailers and web units of chains, though not always profitable, often post year-on-year sales gains of 10 to 30 percent. The proportion for the non-store group is now 6.3 percent, up 0.3 percent over the last year and up more than 2 points over the past 10 years. Note that this group includes electronic auction houses, and with it of course eBay whose sales have been soaring.
Bottom line
The slowdown in the retail sector is one of the year's stories. High gas prices are part of the reason behind the slowdown, but high interest rates and the slowing housing market are also playing a roll. Three dollar gas or nearly $3.00 gas now seems to be a fixed reality given strong global demand and limited supply. Watch for month-end consumer confidence reports especially from the Conference Board and the University of Michigan to see whether spirits have recovered from the spring spike at the pump.
![[Econoday]](../../../../images/ed_logo_a.jpg){kind=logo}
