Motorists keep on pumping

updated 4:47 p.m. ET Aug. 15, 2005

Soaring gasoline prices are getting a rise out of many U.S. motorists, but by and large they’re not getting in the way of summer vacations, commuting habits or SUV sales.

What if gasoline prices, which have risen to $2.55 a gallon, keep climbing?

Diana Amaro, of Denver, said that if gas reached $3 a gallon, she’d consider taking the bus. Ray Sykora, of Yuba City, Calif., said pump prices would have to exceed $4 a gallon before he hopped on public transportation.

No matter how much motorists shake their heads in disgust at record pump prices, fuel consumption isn’t expected to plummet anytime soon. Spending on other goods and services is likely to suffer first, economists said, partly explaining why U.S. financial growth has been slower in 2005 than the previous year.

The latest Energy Department data show regular unleaded gasoline averaging $2.55 a gallon nationwide, or 67.5 cents above year ago levels. At the same time, daily gasoline demand is up 1 percent compared with last year.

Almost two-thirds of those surveyed for an AP-AOL poll said they expect fuel costs to cause them financial hardship. That was up from April, when only about half felt that way. Still, there is little evidence that this has led to meaningful changes in driving habits.

Experts point to a wide range of reasons why U.S. consumers and businesses have, in aggregate, absorbed higher energy prices and maintained a healthy appetite for fuel.

On an inflation-adjusted basis, oil futures would need to exceed $90 a barrel, and retail gasoline prices about $3 a gallon, in order to match the all-time highs set about 25 years ago. And in the past 30 years, the economy has become about twice as efficient energy-wise due to conservation efforts, improvements in technology and the shrinking of the manufacturing sector, among other factors.

In the April-June quarter, when oil prices regularly hovered above $50 per barrel, the U.S. economy grew at a 3.4 percent annual rate.

This solid economic growth is important to understanding America’s resiliency in the face of rising energy prices, said Citigroup Smith Barney senior economist Steve Wieting.

While U.S. consumers spent $50 billion more on home and vehicle energy in 2004, total disposable income grew by almost 10 times that amount, Wieting said.

“This has been a siphon for us, but we’ve still kept a lot of water in the boot,” Wieting said.

Another mitigating factor is that the steep rise in oil prices has occurred gradually, giving families and businesses time to adjust their budgets and mindsets.

A 50-cent-per gallon increase in the price of gasoline amounts to just $5 for every 10 gallons, the average weekly per-vehicle consumption in the U.S., according to John S. Herold, a Norwalk, Conn.-based energy consultant.

Still, Wieting said he has been mystified by motorists’ continued love affair with SUVs and trucks. Ford, Chrysler and GM all said strong July sales were led by trucks, fueled by sales incentives.

Despite the small-but-growing market for hybrid-electric vehicles, “consumers clearly want large inefficient vehicles,” Wieting said.

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