WASHINGTON — Rising gasoline prices are putting a squeeze on Americans already under pressure from higher taxes and are likely to restrain economic growth in the first quarter.
Prices at the pump have increased 30 cents since the start of this year, hitting an average of $3.68 a gallon in the week through Monday, according to the Energy Information Agency.
In Maine, the average price for a gallon of gas on Tuesday was $3.77, an increase of 4 cents in the past week, according to GasBuddy’s daily survey of 1,228 gas stations in Maine.
The increase comes at a time when households are adjusting to smaller paychecks after a 2 percent payroll tax cut expired on Jan. 1 and taxes rose for wealthy Americans.
Low gasoline prices helped to boost consumer spending in the fourth quarter but are now a challenge to growth.
“The rule of thumb is that every penny increase at the pump shaves about $1.2 billion from non-energy consumer spending,” said Jacob Oubina, a senior U.S. economist at RBC Capital Markets in New York.
That means the 30-cent increase in gasoline prices is roughly equivalent to $35 billion, or about 0.4 percentage of overall consumer spending on an annualized basis, he said.
Oubina said that taken together with higher taxes and delays in receiving tax refunds, consumer spending, which accounts for about 70 percent of U.S. economic activity, would likely drop by about 1.5 percentage points in the first quarter.
U.S. gasoline prices are usually on the low side at this time of the year, but global oil costs have risen on stronger-than-expected demand in China and output cuts in Saudi Arabia.
EIA estimates that gasoline prices will peak at $3.73 a gallon in May.
CAUSE FOR CONCERN
“It’s a cause for concern, particularly given the expiration of the payroll tax holiday,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Penn.
“We will start to see gasoline prices eating into discretionary spending this month and into March.”
A government report on retail sales in January due on Wednesday could offer an early read of the impact of higher gasoline prices. Sales are expected to have edged up 0.1 percent after rising 0.5 percent in December, according to a Reuters survey of economists.
“The gasoline station number will be up because of the price-related gains,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, N.C. “Elsewhere, you are going to see lower numbers because consumers don’t have enough income to spend on what they want.”
Consumer spending increased at a 2.2 percent annual rate in the fourth quarter, up from the previous quarter’s 1.6 percent clip. First-quarter estimates for spending growth range from 0.7 percent to 1.8 percent, with economists divided on the degree to which Americans might tap savings for purchases.
Apart from higher taxes and expensive gasoline, delays in tax refunds are also seen crimping spending.
“We are running about $30 billion below last year in tax refunds,” said RBC Capital Markets’ Oubina. “People tend to rely on tax refunds to drive large household purchases.”
Economists said consumers could also be affected by high food prices following last year’s drought, slowing spending even further.
“We have got a slower rate of growth in consumer spending as the year goes forward,” said Well Fargo Securities’ Bullard.