Despite the current reprieve from steadily increasing gasoline prices, U.S. consumers are still hurting at the gas pump. Political instability, seasonal refinery maintenance, the beginning of hurricane season, and Mississippi flooding can all push gas prices higher as we move into the summer driving season. The United States produces about 8 million barrels of gasoline each day, and almost 15% of the nation's refining capacity, along with hundreds of oil wells, is currently in jeopardy against the Mississippi's flood waters. (Higher gas prices don't just hit us at the pumps - these industries also feel the ripples. See 7 Companies Affected By Rising Gas Prices.)
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Economists are divided on where gas prices will go by the end of summer. While some believe gas prices will climb to $5 per gallon by summer's end, others believe prices may stabilize. Regardless of what actually happens to gas prices, already-pained consumers may respond the same way to higher prices or just the threat of $5 gas. Either way, gas prices are affecting consumer decisions.
Where to Live
Coldwell Banker Real Estate (www.ColdwellBanker.com) recently conducted a survey regarding the effects of gas prices on consumer real estate purchasing decisions. The survey, based on responses from thousands of Coldwell Banker's real estate professionals across the country, found that 75% of the respondents believe homebuyers are influenced by gas prices in deciding where to live. If gas prices continue to rise, 93% of homebuyers indicated that they will choose homes that allow for a shorter commute. An increasing number of home buyers are trying to skirt the commute altogether, with 77% of survey takers confirming that today's home buyers are more interested in having a home office versus five years ago (Coldwell Banker, for example, currently has more than 25,000 listings that include "office" as part of the description). In addition to living closer to work, 56% of the real estate professionals surveyed indicated that more home buyers are interested in urban living, a trend that shows more people want to be closer to shopping, public transportation, and other community services.
How to Shop
Higher gas prices mean more consumers let their fingers do the shopping. Online shopping in the United States during April, 2011, for example, grew by its fastest rate in nearly four years, according to MasterCard Advisors. Further supporting the increase in online shopping is search engine giant Google, whose data have indicated that there is a correlation between gas prices and online shopping. As gas prices move higher, there is a corresponding increase in the number of who people shop online in an attempt to save on transportation costs to and from brick and mortar retail locations.
What to Drive
Rising gas prices have forced a country of big car lovers to examine both their driving habits and their vehicles of choice. The Hummer brand, for example, which Motortrend had noted for getting only 10 miles per gallon, fell to its demise in early 2010 as consumers started paying more attention to fuel economy. Today, small, fuel efficient vehicles account for 25% of annual sales in the United States, and hybrid sales have grown by nearly 34% for the first quarter of 2011 over the same period last year.
It may not be practical or economically sensible for drivers to get rid of cars that are gas guzzlers but otherwise in good condition. When the time comes for a new car, however, an increasing number of drivers will choose to go green, purchasing smaller, more fuel-efficient vehicles, hybrids or electrics. (For more reading, refer to How Gas Prices Affect The Economy.)
How to Commute
As stated above, more people are trying to avoid a commute by working from home-based offices. For those who do commute, more are choosing public or shared transportation, especially in urban areas that offer easy access to a variety of transportation methods. Buses and trains aren't the only options for saving money during the daily commute. More workers are enjoying alternative means of transportation, including biking, walking and even skateboarding. Some companies have responded by installing bicycle racks and equipment lockers on campus, as well as changing and shower facilities so employees can clean up before clocking in. Granted, kayaking or skateboarding to work is not an option for most workers, but many find they are able to get on a bike and are choosing to do so.
The Bottom Line
Discretionary spending must be cut as consumers are forced to allocate more of their monthly spending to cover increased gas prices. Consumers have acknowledged that high gas prices may be here to stay, and are making conscious choices in response to the increasing costs associated with filling the tank. Living closer to work, working from home, biking to work, shopping online, and driving more fuel-efficient vehicles are all ways in which consumers are trying to balance the impact of higher gas prices with already fragile budgets. (Feeling overwhelmed by rising oil prices? We offer some tips that will save you money. Refer to Getting A Grip On The Cost Of Gas.)