Keep WV Moving

Charleston Daily Mail, June 7, 2009

Charleston, W.Va. Motorists are grimacing more at the pumps these days as gasoline prices have shot up more than 50 cents a gallon in the last month.

Tom Witt, director of West Virginia University's Bureau of Business and Economic Research, says the recent increases could be costing the average motorist a few cups of coffee a week. According to AAA, the average price per gallon Friday in Charleston was $2.72. That's up from $2.15 last month, yet a far cry from the $4.08 faced by drivers this time last year.

Witt compiled data showing the average passenger car uses 10.5 gallons a week. At the price of $2.19, a motorist might spend $23.04 a week in gas, according to Witt's figures. At $2.79 a gallon, a motorist would spend $29.35.

"Over the course of a year, that would add up," Witt said of the price difference. "For a week, you're looking at a hike of $6, which is a few coffees from Starbucks or Sheetz."

For the long term, Witt projects the recent increase won't put a major dent in the economy. But it might hurt the budgets of frequent drivers or those who have older or gas-guzzling vehicles, he said.

"In the short run, people who drive a lot, like 20,000 miles a year, will be affected," Witt noted.
Many Americans have altered their driving habits since gas prices soared last year. Some have switched to more fuel-efficient cars, meaning gas prices might not be weighing as heavily, Witt said.

"People may perceive it's costing them more, but in the long term, it'll cost less," he said. "More fuel-efficient cars are hitting the market, and with people becoming unemployed and altering their living patterns, they are spending less at the pump."

The federal government is pushing feverishly for car companies to focus more on producing economic-friendly vehicles. Pending 'Cash For Clunkers' legislation in Congress would even give motorists incentives to trade in their old vehicles for vouchers to purchase cleaner cars.

Witt's data also shows consumers used about 13 gallons of fuel weekly in the 1970s. That's three more gallons than the current average. Despite the recent spike in gas prices, Witt says people are programmed to have a knee-jerk reaction when they notice a rise in the cost, whether it's a few cents or 50 cents.

"Any time you have a visible price prominently displayed on street corners, it emits that kind of response," Witt said. "They are the most visible price we see when traveling. If you drove by grocery stores and they priced milk per gallon, you'd get incensed as well seeing it jumping week to week."

Witt said most analysts believe prices won't go as high this year as they did last year.

Christine Risch, director of research at the Marshall University Center of Business and Economic Research, said gas prices, whether high or low, do not serve as a true measuring stick for the state of the economy.
Prices had dropped remarkably to around $2 a gallon late last year and early this year, yet the economy stayed in rough shape, Risch insists.

"I disagree that low prices save the economy," she said. "I don't think it's a fundamental piece. Input to production, as well as personal spending, are more directly tied to consumption."

"The low prices didn't save the automakers."

Crude oil last week climbed $2.27 - or 3.4 percent - to $68.58 a barrel, the highest since November. The oil prices jumped after global stock markets rallied and the dollar took a tumble. Risch said another reason behind the recent price surge is due to petroleum producers having an excess supply. "They want to correct that," Risch said. "That's why they're trying to tighten supply if they can. Refiners are producing less than they did last year. What's going to happen to the economy is a subject to debate.
"What we're seeing right now is a readjustment of supply and demand."

Despite the relatively low prices, when compared to last year's numbers, overall fuel demand has remained weak, she said. The number of miles driven collectively by Americans dropped 3.1 billion miles in March, compared with the same time last year, according to the Federal Highway Administration.

Risch suspects consumers lost confidence when gas prices peaked last year and still have not returned to their old ways, as it pertains to travel. Gas consumption for 2009 is expected to be lower than last year's, she added. She pointed at the airline industry as another example.

"The airlines had good prices earlier this year, but we didn't respond so much," she said. "Air travel did not increase because the prices were low." Risch also noted that the peak month for gas prices is usually May or June.

George Hammond, associate director of West Virginia University's Bureau of Business and Economic Research, said there's no widespread consensus on what specific factors, other than rising oil costs and lower refinery production, are driving up the prices.

But Hammond cautioned that high oil prices generate slower economic growth and rising inflation. "The increase so far is pretty modest," he said. "What would generate a significant slowdown would be if the oil and gas prices got back to where they were maybe a year ago."

The state average Tuesday in West Virginia was $2.60, up from $2.15 last month. A year ago, the state average was $4.05. "Prices are volatile," Hammond said. "They respond to a number of factors like economic growth, supply and demand, and the expectations of the future."

Hammond said he could not predict whether gas prices would continue to climb, but he said analysts believe the economy will pick up noticeably in 2010.

Larry Malone

Malone Consulting Services

(304) 545-3052

www.malonecs.com