NEW YORK – Robert Wright would like to be buying books or taking his family out to dinner. But he has to budget for higher gasoline bills instead.
“Unfortunately, it’s not that I’m willing to pay it, it’s that I have to pay it,” said Wright, a police officer who was at the Westfarms Mall in West Hartford, Conn., earlier this week.
Many Americans have had to make similar adjustments in their spending to cope with higher energy costs. And it appears the economy is finally starting to show the effects of their financial juggling.
The Commerce Department said Friday that economic growth slowed dramatically during the second quarter as Americans spent less. The shift came as something of a surprise because earlier in the week, the Conference Board had reported an unexpected rise in consumer confidence.
Clearly, consumers are faced with the reality that high energy costs won’t go away anytime soon. Oil prices remain stubbornly high, near $74 a barrel, partly because of worries that the conflict between Israel and Hezbollah in Lebanon could draw in other countries in the Middle East.
Higher energy prices were reflected in the Commerce Department’s latest snapshot on the gross domestic product, which showed that the economy’s growth from April through June was less than half that of the prior three months as consumers tightened their wallets and spending on home building plunged. The GDP’s 2.5 percent annual growth rate was the slowest since it hit 1.8 percent in the final quarter of 2005, when the economy was suffering from the fallout of the Gulf Coast hurricanes.
Consumers have issues beyond energy prices. A big source of cash – home equity lending – is drying up because higher interest rates and the leveling of housing prices have made such financing less attractive.
“We’re definitely at a crossroads,” said Zoltan Pozsar, economist at Moody’s Economy.com. “If (oil) prices don’t moderate in 2007, we will see a much larger impact” on consumer spending.
Gregory Miller, chief economist at SunTrust Banks Inc., agreed, noting, “For the past two years, consumers have figured out a way to accommodate and sustain their living standards. This past quarter, cracks are showing up.”
Analysts said a steady job market and wage growth have helped prop up consumers’ confidence. But they also noted that despite its strong showing, the Conference Board’s consumer confidence index had some worrisome components.
Lynn Franco, director of the organization’s Consumer Research Center, noted a widening gap between how consumers feel about current conditions and their six-month outlook on the economy, which has fallen below levels seen back in January.
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