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Larrry

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ECONOMY: Gasoline prices curtail discretionary spending

Gregory Bull/AP Lorena Delara takes a picture of the total she paid after filling up her tank at a gas station in San Diego. Delara paid $81.27 for a little over 15 gallons of gas. BY JACK KATZANEK
BY JACK KATZANEK The Press Enterprise

Putting enough gasoline into your car to get to and from work is one of those expenditures that’s considered a necessity, which means a lot of items that might be classified as luxuries take a back seat when the price of fuel gets close to $5 per gallon.

That is not good news for an economy that derives more than two-thirds of its activity from consumer spending. If people are forced to spend an extra $50 each month just to commute to a job, it means their discretionary income, which could otherwise go toward new clothes, home furnishings or even a meal at a modest restaurant, is being eaten up.

The price of gas escalated sharply this week and was averaging $4.48 per gallon in Riverside and San Bernardino on Friday, Oct. 5, according to the Automobile Club of Southern California. That’s not only an overnight increase of 18 cents but it’s 67 cents higher than a year ago and almost $1.50 per gallon more than early October 2010.

It means that a person filling up a vehicle with a 20-gallon tank once a week to get to work is spending about $56 more per month. This is based on the U.S. Census Bureau’s estimates that the average Inland Southern California worker commutes about 50 miles every day to get to and from work.

“The purchase of gas is not discretionary for most consumers,” said David Stewart, a professor of marketing at UCR’s School of Business Administration. “If the price of gas goes up, they’re going to have to figure out what they can cut back on.”

Stewart said some of this could come from consumers “trading down.” A family that might have gone to a full-service restaurant with $18 entrées could settle for a cheaper family-style meal, and diners who usually went to a family restaurant could now opt for fast food.

“So not everyone is a loser,” Stewart said. “But for most people, $50 a month is a sizable hit, and it will ripple down in terms of hiring.”

Gas prices topped $4 a gallon in the first part of the summer and have mostly stayed there, and retail business owners, expecting fewer shoppers, are doing little hiring. Few have added new jobs in Inland Southern California since the spike started. According to the state Employment Development Department, there were an estimated 154,600 people holding retail jobs in August, the most recent month for which there’s data.

That represents an increase of only 600 jobs since May. During that time frame, 2,700 office jobs have been added, along with 1,200 in the logistics industry and 700 in the health care field. Even the financial sector, which has been virtually moribund since the collapse of the housing market five years ago, added 500 jobs between May and August.

Job growth at leisure and hospitality venues, which includes restaurants and movie theaters, was even weaker.

The economic stress from the fuel spike is exacerbated in the Inland area because about 221,000 people are officially listed as unemployed. The August jobless rate was 12.3 percent.

It also hits many households that are making mortgage payments, economist John Husing said.

“Now they have to pay more for gas, which is $50 that won’t be going to Stater Bros.,” Husing said.

Many retailers say they’re worried about the persistently high gas prices and especially nervous of this week’s sharp spike, which oil companies are blaming on refinery troubles and other infrastructure issues.

Linda Silva, the senior groomer at Pawlished Paws, a pet-grooming storefront in Riverside’s Canyon Crest Towne Center, said this sounded like trouble as soon as the news got out.

“This is the kind of service that falls pretty low on the totem pole,” Silva said of pet-grooming.

Robyn Murray, who co-owns City Florist, a family-owned operation in Redlands, said she woke up on Friday, Oct. 5, and found out there was another overnight spike. But she said over the last four years the family has gotten used to trying to sell items generally seen as luxuries to economically stressed consumers.

“People would rather buy a gallon of milk with those last few dollars than a bouquet of flowers,” Murray said. “And, I would too.”

Murray and other owners of consumer-oriented businesses said the higher gas prices have an effect beyond just the shortage of disposable income.

A small business owner has to pay for materials to be delivered and, in some cases, ship finished orders to customers.

Often suppliers tack on delivery surcharges when gas prices spike.

Mark Orman, owner of Woodwork Creations, a Perris business that custom-manufactures and sells cabinets, said all these factors weigh on his operation. Also, he said it’s hard on his sales team, whose members drive to customers’ homes.

Orman said it seems like a period of “stagflation,” an economic term that describes higher costs but with a sales pace that’s not growing.

“I think we’ve been hit by this,” he said. “The customers are not spending.”
 
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