At gas pump, 2011 was the year of the big squeeze

NEW YORK (AP):

IT'S BEEN 30 years since gasoline took such a big bite out of the family budget.

When the gifts from grandma are unloaded and holiday travel is over, the typical American household will have spent US$4,155 filling up this year, a record. That is 8.4 per cent of what the median family takes in, the highest share since 1981.

Gas averaged more than US$3.50 a gallon this year, another unfortunate record. And next year isn't likely to bring relief.

In the past, high gas prices in the United States (US) have gone hand-in-hand with economic good times, making them less damaging to family finances. Now prices are high despite slow economic growth and weak demand.

That's because demand for crude oil is rising globally, especially in the developing nations of Asia and Latin America. But it puts the squeeze on the US, where unemployment is high and many people who have jobs aren't getting raises.

The trap has caught Michael Reed of Charlotte, North Carolina. He hasn't been able to find work since he lost his computer-support job in 2009. Now, high gas prices are claiming more of what he has left. He and his wife won't exchange gifts this Christmas.

Cutting back on driving

"I try to drive as little as possible so it doesn't take such a chunk out of my wallet," he said.

In 1981, when the economy was sliding into recession and oil prices were high because of Middle East turmoil, gas ate up 8.8 per cent of the typical family budget, said Fred Rozell of the Oil Price Information Service (OPIS).

Over the last decade, gas has taken up 5.7 per cent of the family budget. If families had spent only 5.7 per cent this year, they would have saved US$1,300.

For this year, gas should average $3.53 per gallon. That's 76 cents more than last year. It's 29 cents per gallon more than 2008, when gas last set an annual record, US$3.24. That year, the price of oil hit a record in the summer but collapsed when the financial crisis struck in the fall.

Besides leaving families less money to eat out and go to the movies, high gas prices take a disproportionate toll on consumer confidence. People are more aware of small changes in gas prices because they drive past the signs all the time.

And a buck spent on gas has less bang in the economy than, say, a dollar spent at a restaurant. The US is an oil-importing country, so many of the dollars spent on gas ultimately leave the country instead of being invested here in new ventures and jobs.

Substantial hit

James Hamilton, an economics professor at the University of California, San Diego, who studies energy prices, estimates that high gasoline prices reduced economic growth by about 0.5 per cent for the year - a substantial hit for an economy only growing at an annual rate of about two per cent.

Still, it could be worse. The US economy is much more fuel-efficient than it was during the oil spikes of the late 1970s and early 1980s. In 1980, for every US$1,000 of economic output, 1.07 barrels of oil were consumed. By 2010, it took half that - 0.53 barrels, said Judith Dwarkin, chief energy economist at ITG Investment Research.

Today, the US uses almost no oil to generate electricity. The percentage of households using heating oil has fallen. And vehicles are less thirsty than ever - 20 per cent more fuel-efficient than they were in 1980.

Spending more on gas

Also, the low price of natural gas has kept heating and electricity costs down for the same households spending more on gas.

Relief from high gas prices is nowhere in sight, though. Ed Morse, head of commodities research at Citibank, expects oil to average US$100 per barrel next year, which would eclipse 2011's average of about US$95 per barrel.

Tom Kloza, chief oil analyst at OPIS, expects gasoline prices to approach US$4 per gallon again next spring.

Drivers are keeping gas guzzlers in the driveway, combining trips and buying more efficient cars. Compared with the year before, American gas consumption has been down every week for more than nine months, according to MasterCard SpendingPulse, a spending survey.

But that only helps so much. Hunter Collins, a software support technician who lives in Richmond, Maine, commutes 40 miles each way to his job in Falmouth. He has started to carpool with a colleague and to take his wife's more fuel-efficient car to work when it is his turn to drive.

It's still not enough. He said he's going to sell his beloved eight-cylinder Dodge Charger. "She's my baby, but I'm going to have to switch to something more economical," he said.