Retail spending rises - except for gas

They say the devil's in the details. And while economists were reveling in yesterday's news that retail spending was higher than expected last month, one detail in the Commerce Department report told a cold, hard truth about gas-pump patterns: Drivers are guzzling fewer gallons.

The core of the report, which buoyed Wall Street and economists, was that the overall 1 percent retail increase resulted from improved sales in almost all categories: furniture, electronics, books, food, clothing - even cars. Economists had expected only a half-percent increase, given how the economy and expensive gasoline have affected consumers.

Economists said federal tax rebates likely spurred the unexpected spending in the retail sector, a key part of the U.S. economy. They hoped the good news would continue through the summer as more tax checks made their way into mailboxes.

But the data also showed that high gas prices remained a major force in people's lives - and that drivers were pushing back against costly crude by pumping less into their fuel tanks.

Consumers spent 2.6 percent more on gas in May than they did in April - the single biggest driver behind the 1 percent increase in overall retail spending.

But per-gallon gas prices went up 9.7 percent that month, according to AAA Mid-Atlantic. That means drivers have sharply curbed their gasoline consumption. They are paying more for gas, but are buying less of it.

"Unit sales of gasoline is down - and down pretty sharply," said Joel Naroff, chief economist of Commerce Bank, who reviewed the retail-spending data.

"Consumers are cutting back on the number of gallons that they're purchasing," Naroff said, meaning that as gas prices have reached $4 a gallon, "they are adjusting very quickly and very dramatically."

Demand has diminished sharply over the last three months in particular, as gas prices have spiked to levels never before seen.

"People are generally buying less when they do come in for a fill-up," said John Kulik, executive director of the Pennsylvania Petroleum Marketers and Convenience Store Association.

"Is demand down? Absolutely," Kulik said. "In terms of overall purchases in the state and the nation, it's down."

The good news was that consumers took their rebate checks and apparently didn't dump it all either into their bank accounts or their fuel tanks.

"What I thought was positive for the economy was the fact that it was being spent broadly across virtually the entire range of retailers and that we didn't see even bigger increases at gas stations and at retailers selling food," said Scott Hoyt, a consumer economist with Moody's Economy.com in West Chester.

Signs of a pullback on consumer demand for gasoline have been emerging for several months now.

Data released a few weeks ago by the Federal Highway Administration showed that motorists across the United States drove 11 million fewer miles in March than they did a year earlier.

The 4.2 percent drop was the sharpest monthly decline since World War II, when the government began collecting the data. Numbers for April are due out in the next week or so.

Similar trends are seen in gasoline-purchasing patterns compiled by the U.S. Energy Information Administration.

Drivers nationally bought 363.2 million gallons of gas per day in March - 13.1 million gallons less than the same time last year.

A similar decline was seen in Pennsylvania, where motorists bought 12.6 million gallons of motor fuel a day in March 2008, compared with 12.7 million a year earlier.

There is no question that the gas crunch has been a drag on retail spending.

"Gasoline is definitely taking a bigger chunk out of people's available cash," said Judy Spires, president of Acme Markets.

That's why the rebate checks have been greeted with open arms by supermarkets such as Acme, which is giving out a $30 store credit for every $300 of rebate money spent there.

Spires said she hoped the rebate checks would continue to flow through her stores through the end of the summer, as economists expect.

Said Spires: "We're seeing continued, steady redemption."