High gas prices start to hit the economy

A customer prepares to spend her money.

Kai Ryssdal: Sorry, though, to tee up the broadcast with something most of us see every day as we're out and about: Those placards at gas stations with prices that start with 4s, as in $4 a gallon.

We start there today because the Commerce Department reported this morning that consumers spent 0.5 percent more in April than we did March. Half a percent, you say? Not all that much, granted. But more than half of the increase was swallowed up by gas stations. The extra money consumers are pumping into their cars is starting to drag down the rest of consumer spending. Marketplace's Mitchell Hartman reports.


Mitchell Hartman: People who track the economy look for tipping points: key moments when consumer behavior shifts, like a ship turning at sea.

Chris Christopher: Especially when gas prices surpass a round-dollar figure, there is a trigger point which actually causes downward movement in consumer mood.

Economist Chris Christopher at IHS Global Insight says we hit that trigger point around a week ago -- when the average price of gas topped $4-a-gallon nationwide.

Meaning, the slowdown in spending in April on most everything except for gas, could turn into a decline this month or next.

To test the theory, I headed to the 76 Station where I usually gas up, and where financial advisor Mary Martinis was filling up her late-model Caddy for $3.99 a gallon.

Mary Martinis: It honestly has a huge effect on me. I don't go as many places, I carefully route where I'm going, spend a lot less money on other things.

Hartman: What? What are the things that go first?

Martinis: New clothes, nice restaurants, different activities for my child to do, I can't afford.

Retail analyst Marshal Cohen of the NPD Group says consumers may be in a state of gas-price-shock right now, but:

Marshal Cohen: You know, if gasoline can get below $4, and then comes back to $4 again, that second time is going to have a lot less impact than the first time. So, when you ask, is the consumer going to get used to it? History dictates that they do. They make adjustments.

Such as, they start shopping -- for more fuel-efficient wheels.

I'm Mitchell Hartman for Marketplace.

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.

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