Economy tempers American enthusiasm for the road

July 9, 2010 7:42:06 AM PDT
Americans won't be taking long road trips this summer - at least if the latest data on gasoline demand is any indication.

The government reported Thursday that gas demand in the past four weeks was little changed from the same period in 2009 when the recession was in full swing. And it's less than what Americans used on a daily basis during the boom years between 2004 and 2008.

It's more evidence that consumers continue to worry about jobs and paying the bills. The jobless rate is still flirting with 10 percent and consumer confidence is weak. In addition, gas prices are roughly 12 cents more per gallon than a year ago, another brake on discretionary spending. Retail sales have been sluggish and recent recoveries in home and auto sales have stalled.

Economists and oil traders watch government reports on gasoline demand this time of year because it's the peak driving season, when vacationers join commuters and commercial drivers on the road. Right now, it also serves as a sign of how the economy is progressing.

The recovery is "like moving forward in a traffic jam," says Diane Swonk, chief economist at Mesirow Financial. "You're moving forward, but the longer you're in it, the more frustrated you get. And the uncertainty of not knowing what's stopping you, what's slowing you down."

Brenda Nurre and her husband decided against taking their five kids on a vacation to Las Vegas and California because of gas prices. "There's no money to do it," she said as she filled her vehicle at a Denver convenience store station.

The 33-year-old disabled Army veteran from Avondale, Colo., makes three 225-mile roundtrips to Denver each week for medical treatment. At about $2.67 per gallon for gas, that takes a chunk out of their fixed income.

The amount of gasoline used around the July Fourth holiday can be a key indicator of what may occur the rest of the year, analysts say. The average price nationwide is around $2.72 per gallon, though it's much higher in cities like Los Angeles, Chicago and New York.

The Energy Department's Energy Information Administration said wholesale gasoline demand averaged 9.4 million barrels per day in the four weeks leading up to the holiday weekend.

That's about 2 percent higher from the same time in 2009 but down about 1.1 percent from the daily average of 9.6 million barrels between 2004 and 2008, said Hamza Khan, an analyst with The Schork Report.

"I just don't think that the consumer is in a position to get in the car and fill up with gasoline and drive long distances," says Linda Rafield, a senior oil analyst for Platts.

The consumer confidence report last month showed a steep drop in the number of people surveyed who planned to take a vacation by car, compared to a year ago. The June index of consumer confidence reported by the Conference Board, a public research group, took its biggest overall drop in February.

Tradition Energy analyst Addison Armstrong blames high unemployment - which affects more than vacation driving.

"I've said this many times and it sounds calloused but people who don't have jobs don't drive to work every morning. That really takes away a good chunk of what otherwise would be perhaps some healthy gasoline demand."

For Swonk, the Mesirow economist, it's not surprising that getting out of such a deep recession has been so tough.

"We've dug ourselves into a fairly deep hole and getting out of it has not only been difficult but fraught with a lot of obstacles," she said.


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