By  on August 15, 2005

Is this as good as it gets for retail?

With the Consumer Confidence Index unexpectedly falling in July, breaking a three-month upswing, and now gas prices soaring again and interest rates expected to fly higher, there could be some pressure building that may tighten consumers’ purse strings.

Last Friday, crude oil prices leapt to a record $66 a barrel, which is nearly 50 percent higher than it was a year ago. Gasoline prices are already up 24 percent since the start of the third quarter, according to a SG Cowen economic report. Apparel spending is likely to be impacted.

“I heard on the radio the other day an interview with one fellow who commutes from Queens to the Bronx. His daily commute now costs $10 just for gasoline. He said that he has cut back on all peripheral spending. That affects apparel and entertainment spending because the price of gasoline is eating up his disposable dollars,” said Stanley Officina, president and chief executive officer of Ultimate Financial Solutions, a factoring and receivables management firm.

Officina also warns that rising home heating bills will cut into consumer spending, especially for home owners in regions such as the Midwest and Northeast.

“Last year I locked in at $1.499 a gallon for heating oil, which was fabulous. This year when I called a month-and-a-half ago, I was quoted $2.299 a gallon. If I call now for a quote its probably more like $2.499 or $2.599 a gallon. That will have a very serious impact on spendables. If it’s a tough winter, and a typical home owner spends a couple of thousand for heating, it could easily mean a 50 percent to 100 percent increase in costs. Now we’re starting to talk about real money,” Officina said.

Jim Rice, a retail analyst at Susquehanna Financial Group, believes the impact will affect lower-income shoppers first before migrating to higher-income consumers. “I could easily see the impact work its way up to the more moderate and even upper-moderate retailers if gas prices climb higher. Once the winter months come, you’ll definitely see consumers in the Northeast and upper Midwest get impacted by heating costs,” he said.

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