Petrol prices cast shadow on US holidays

The Memorial Day holiday next weekend marks the start of the peak US driving season as Americans’ thoughts turn to summer holidays. This year however, record petrol prices are casting a shadow over not only their holiday plans, but a wide swathe of the US economy.

The average price of regular gasoline climbed to $3.12 a gallon on Friday, surpassing the previous high of $3.06 set in the wake of Hurricane Katrina in September 2005, according to the AAA motoring organisation. Prices averaged $2.43 in the first quarter of this year.

“The magnitude of the run-up does effectively drain spending from the consumer,” says Nigel Gault, economist at Global Insight. He adds: “It’s bad for anybody who ships anything anywhere”.

Global Insight estimates that each 10 cent-per-gallon rise in the petrol price costs Americans an annualised $10bn, lopping about one-tenth of 1 per cent off total disposable income.

The motor industry is already feeling the impact, reinforcing the housing slump. US light-vehicle sales fell by 7.6 per cent in April from a year earlier.

IRN, a Michigan-based consultancy, forecasts that “the weakness that we are seeing in the first four months of 2007 will continue to soften as the year progresses”.

The pressure is most intense on the three Detroit-based carmakers – General Motors, Ford Motor and Chrysler – that depend most heavily on sport-utility vehicles and pick-up trucks.

According to JD Power, a research group, sales of small vehicles have grown from 26.3 per cent of new-vehicle retail sales in early 2004 to 31.8 per cent in the first three months of this year. The proportion of vehicles fitted with four-cylinder engines has climbed from 27.5 per cent to almost 36 per cent.

General Motors offered interest-free financing this week on its 2007 Chevrolet Silverado pick-ups, an unusually generous perk for a new model.

Orders for big freight trucks slumped by two-thirds in April compared with a year earlier.

Some of the slowdown is due to heavy orders last year ahead of new anti-pollution rules for diesel engines, but the trucking industry has also been hit by higher fuel costs and an unexpected slide in volumes.

Apart from oil producers and refiners, there are few winners from the surge in petrol prices. Mr Gault singles out railway operators, “to the extent they can handle it”.

The soaring gasoline prices could encourage many families to take their summer holidays closer to home, hitting resorts in isolated areas.

Apart from that, the soaring gasoline price is unlikely, at least for now, to prompt big changes in Americans’ driving habits.

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