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High gas prices may stall Idaho recovery

By John S. Church
Excerpt from Idaho Statesman

Consumer confidence may be improving and retail sales appear strong, but rising gasoline prices are putting a drag on economic growth.

Today, most economists do not believe that the current rise in oil prices will be a serious hurdle for the U.S. economy or that it could derail the economic recovery.

They state that in general the economy has become less sensitive to oil prices in the past two decades due to the adoption of energy-efficient technologies and substitute fuels.

That may be true, but there's no debating the fact that the U.S. consumer will feel the effects of higher oil prices.

In mid-March, one estimate was that U.S. consumers would be likely to spend nearly $30 billion more at the pump in 2004, about 15 percent, due to rising gasoline prices.

Today, that estimate could be revised upward to $33-$35 billion. And while this increase represents a modest amount of total retail sales in the United States, it has the potential to weaken our economic growth and recovery.

The simple fact is that when we open our wallet or purse to pay for that next tank of gasoline, it will take more dollars than it did just a few months ago.

In the short-run, until I can make some adjustments to my driving habits or find an alternative means of transportation that uses less fuel, I will have to readjust my spending away from other things to pay these higher fuel costs.

And that's what worries retailers, concerns manufacturers and drives the angst of politicians.

These additional expenditures on gasoline can have the effect of lessening consumer spending on other goods and services – goods and services that are produced in the U.S. economy and are creating domestic jobs.

Idaho's economy could be hurt more than those of other states because the amount of open space and the distances that must be traveled between communities in the western United States make gasoline a larger part of our spending picture.

In 2000, the Department of Energy's Energy Information Administration ranked Idaho 11th in the nation in terms of annual per capita expenditures for gasoline at $768 – 11.5 percent higher than the national average of $689.

It's also true that gasoline prices in Idaho have been higher than the national average for at least the past four years.

Whatever the price, Idaho citizens and businesses buy a lot of gasoline. In 2000, according to Energy Information Administration reports, we used nearly 1.63 million gallons of gasoline per day.

In 2002, that total reached 1.678 million, and last year it was nearly 1.758 million gallons.

Total expenditures on gasoline in Idaho may have reached $751 million in 2003 – a $181 million dollar increase from the year before – with higher gasoline prices accounting for nearly $154 million of that increase.

And things seem to be getting worse.

Even with a reasonable estimate of reduced gasoline consumption due to the higher prices, the latest round of gasoline price increases may have captured an additional $20 million of the budgets of Idaho households and businesses.

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