Rising prices could stall local recovery
Justine Griffin/Sarasota Herald-Tribune
Waning consumer confidence and tepid spending could stall the already-slow economic recovery in Southwest Florida and elsewhere, following a lackluster holiday shopping season and price increases set for later this year.
Analysts say rising prices for food, gasoline and other household goods will affect how much money consumers spend, especially in the beginning of this year.
“Consumer confidence got dragged down in mid-November, and again in December, and will likely stay down for the next couple of months,” Green added.
Spurred on by fears of sharp tax increases and government spending cuts known as the “fiscal cliff,” consumer confidence nationwide sunk in December to its lowest level in four months.
Nationally, confidence fell to 65.1 on a 100-point scale, down from 71.5 in November. In Florida, confidence remained unchanged in December at 74, a University of Florida Bureau of Economic and Business Research department survey showed.
Driving the decline, in part, were rising gas prices and anticipated boosts in prices for foods including milk and meat, the result of a prolonged Midwestern drought last summer that hit wheat and corn crops hard.
The federal deal to avert the fiscal cliff, meanwhile, is expected to up Social Security payroll taxes by 2 percent for workers, leaving many consumers with hundreds of dollars less to spend over the course of the year.
Gas prices, in particular, are at an all-time high for the beginning of the year, said Jessica Brady, a spokeswoman for AAA. The average price in Sarasota for a gallon of unleaded, regular gas rose by eight cents this week, to $3.36, AAA data shows.
“Gas prices will likely continue to increase throughout January,” Brady said, “however, it’s doubtful we will see an immediate spike in fuel demand.”
Good deals ahead?
The wilting consumer confidence began making itself felt last month during holiday shopping.
Though recent reports say spending rose 4 percent to meet expectations, many analysts contend the Christmas shopping season was lackluster and fell short of predictions.
Retail sales on popular gift items grew by 0.7 percent for the two months before Christmas, compared with a 2 percent growth in 2011, according to MasterCard Advisors SpendingPulse.
Overall, MasterCard calculated that sales in the two months leading up to Christmas — a time when many retailers generate as much as 40 percent of their annual sales — were at their weakest point since 2008, when the country was in recession.
“What this means for consumers is there will be a larger amount of inventory for the spring 2013 season, and we’ll likely see good sales because of this,” Green said.
Retailers attempted to attract customers after a robust Black Friday and Cyber Monday by offering doorbuster promotions throughout the shopping season, with mixed success.
Local Best Buy stores, for instance, saw an increase in traffic stemming from extended store hours and new incentives. Other retailers matched prices with competitors, while Macy’s and Toys R Us stores stayed open for long consecutive hours over the weekend leading up to Christmas.
Still, foot traffic and sales were down compared with 2011 nationally, according to ShopperTrak, a retail research firm. Sales were down 2.5 percent from 2011 and foot traffic inside malls and other centers fell by 3.3 percent, the group stated.
Food prices, by contrast, are slated to rise in 2013, by 3 percent to 4 percent, according to a Bureau of Labor Statistics division.
The price of beef alone is expected to rise by nearly 5 percent, and dairy prices will climb 3.5 percent this year. Both are related to the troubled summer corn harvest.
Even so, supermarkets are not likely to feel any sales dearth, analysts said.
“Grocery stores and other retailers that sell necessity products can expect steady sales in 2013,” Green said.
Lakeland-based Publix Super Markets Inc. maintains that it will work to keep rising prices under control.
“As the cost of fuel, energy, ingredients and finished products increase, we, like all retailers, must factor price increases into our cost of doing business,” said Shannon Patten, a Publix spokeswoman.
“We have been successful in delaying some cost increases, reducing the amounts of some increases and working with our suppliers to create more weekly specials.”
The gas question
Higher food costs, combined with rising gas prices, will almost certainly hit Floridians already straining to recover from the longest and deepest economic recession in seven decades.
“For every 10-cent increase in the price of gas, it removes $11 billion from the U.S. economy,” said Gregg Laskoski, a Tampa-based petroleum analyst for GasBuddy.com.
With each gallon costing an average of about 10 cents more than a year ago, according to Gas Buddy data, Laskoski predicts that, at its peak, drivers will be paying 90 cents more toward the end of 2013 than at the same time in 2012.
As a result, Southwest Florida drivers may pay $4 a gallon at the pump by year’s end, Laskoski predicts.
Therefore, if the average price was $3.36 at Dec. 31, Laskoski predicts prices will peak later this year at around $4.26.
“The average price of gas on the last day of the year will be the floor price for what we will pay next year,” he said.
And while auto sales were brisk throughout 2012 in Southwest Florida, climbing gas prices could clip future sales, or affect what cars are purchased.
Overall, new car sales were up 11 percent at the end of 2012 in the three-county area, and 13.5 percent nationally, according to Edmunds.com, a vehicle research website.
Nationwide, the auto industry experienced year-over-year growth for the first time in nearly three years.
“Auto sales have shown strength during the recovery and those sales will continue this year but will likely moderate into 2014,” said Sean Snaith, a University of Central Florida economist. “Because people have simply gotten to the end of their rope and it’s time to replace their vehicles.”
Locally, Sarasota Ford sold fewer cars in December than in prior months, but it was on track in 2012 to have its best year since 1995, said Matt Buchanan, the dealership’s operating partner.
“I think the nervousness around the fiscal cliff kept December from being a great month,” Buchanan said. “But I still think people will be buying cars in 2013 and at a higher rate than in 2012.”
The Sunset Dodge Chrysler Jeep dealership in Sarasota said sales were up 28 percent in December. Charlotte County lead the tri-county area with a 16 percent increase in sales, with most dealerships there reporting month-over-month growth.
“December will be the icing on the cake for 2012. It’s a strong close for a year that had significant auto sales growth throughout,” said Edmunds.com senior analyst Jessica Caldwell.
“Along with the momentum of the improving economy, December car sales have been helped by compelling advertising, generous deals from most automakers, and the rush of demand unexpectedly and unfortunately caused by Hurricane Sandy,” Caldwell added.
Car sales are significant because the auto industry and affiliates account for one in seven jobs regionally and nationwide. Sales are also seen as a bellwether for the larger economy and for consumer confidence.
Even so, some analysts contend the hike in payroll tax payments by workers, at a time when commodity prices are rising, could have a significant impact on consumer confidence moving into 2013, officially the fourth year of recovery after the Great Recession.
“All of this ensures that people will have less money from their paychecks and that means they have less that goes into a grocery store, or a clothing store, or a day care center,” Snaith said. “That’s a headwind we already know is upon us.”